Allergan tilts toward Valeant in merger chain reaction
Deal has implications for $600-billion worth of other fusions
NEW YORK — Allergan is running out of ways to avert a takeover by Valeant Pharmaceuticals International.
The $53-billion Botox maker’s defensive options were to acquire smaller drugmaker Salix Pharmaceuticals or merge with similar-sized peer Actavis. Now, in what may be Allergan management’s worst-case scenario, Salix and Actavis are in deal talks. It puts Valeant at an advantage, unless Allergan breaks up those talks, finds another target or announces share repurchases or a dividend. Allergan is up against a deadline: Shareholders vote on Dec. 18 whether to remove its board members.
“From the time of Valeant’s bid to the time Allergan has the special meeting, if Allergan doesn’t do anything to use that capital, they’ll have a lot of frustrated shareholders,” said Annabel Samimy, a New York-based analyst at Stifel Financial. “That’s why it tips in Valeant’s favour.”
There aren’t many other takeover candidates that would move the needle for Allergan, she said. Its investors are already pushing back on a Salix deal, so they probably wouldn’t support Allergan getting into a bidding war for the company. Analysts have said Salix is a better fit for Actavis anyway because both companies make gastrointestinal remedies, while Allergan focuses on Botox and eye-care products.
“The likelihood of Allergan buying Salix is becoming more distant,” Neil Maruoka, a Toronto- based analyst at
The likelihood of Allergan buying Salixis becoming more distant.
NEIL MARUOKA
CANACCORD GENUITY ANALYST
Canaccord Genuity, wrote last week. “Actavis is a much more logical buyer.”
A representative for Allergan declined to comment, referring to the company’s Sept. 29 statement that said it’s committed to enhancing shareholder value.
Allergan’s fate has implications for about $600 billion worth of deals in the works across the pharmaceutical industry because all of the pending mergers have become entangled. And whichever companies are left out of this round could wind up as either buyers or targets in the next. If it sounds complicated, that’s because it is.
“There are almost infinite permutations,” Ronny Gal, a New York-based analyst at Sanford C. Bernstein, said.
If Actavis gets tied up in this deal, Pfizer may have to remove the $62-billion company from its list of backup plans after AstraZeneca rejected the drug giant’s takeover offer this year. New Yorkbased Pfizer had approached Actavis as it continues to look for an alternative deal that will cut the $184-billion company’s tax rate and give it a new product pipeline, people with knowledge of the matter said.
AbbVie, after it completes its purchase of Shire, would be another possible tax-inversion candidate for Pfizer, according to Ken Cacciatore, a New Yorkbased analyst at Cowen Group.
Amgen, a $104-billion biotechnology company that makes treatments for cancer and kidney disease, could even get swept up in the takeover frenzy. Valeant could pursue it after completing an Allergan acquisition, Cacciatore wrote last month.
Valeant, the most acquisitive drugmaker of the past four years, teamed up with Bill Ackman’s Pershing Square Capital Management to bid for Allergan in April. Pershing is Allergan’s largest shareholder.
Valeant’s offer is a mix of cash and stock, so it fluctuates in value.
Although Allergan continues to say the proposal is “grossly inadequate,” Valeant, based in Laval, Que., has said it’s willing to negotiate.
On Friday, Allergan shares rose 3.7 per cent to $183.34. Salix gained 1.2 per cent to $152.87, and Valeant climbed 2.1 per cent to $129.62. All figures in U.S. dollars.
Actavis was also said to be interested in buying Allergan and approached the company in August with an offer that wasn’t much higher than Valeant’s, a person with knowledge of the matter said.
Allergan’s effort to acquire Salix stalled in recent days over price concerns and after Allergan’s shareholders reacted negatively to the idea. Salix is in talks to sell itself to Actavis instead and an agreement between the two has become more likely in the past week, the people said.