May 28 2014, 11:06am CDT | by Forbes
For two weeks, Valeant Pharmaceuticals has been promising to bolster its hostile bid for Allergan to win the widely watched takeover battle. But investors do not seem to be impressed with Valeant’s enhanced $49 billion offer for the maker of Botox.
Valeant increased on Wednesday morning the cash that the company is offering Allergan shareholders by $10 per share to $58.30. Valeant continued to offer the same 0.83 of a Valeant share and added a contingent value right sweetener around Allergan’s experimental vision-loss drug that Valeant claims could result in payments to Allergan shareholders worth as much as $25 a share.
In the tax-driven deals that companies like Valeant have pursued aggressively in recent years, shares of both the acquirer and seller have tended to increase when the deals are announced. Investors, however, sold shares of both Valeant and Allergan on Wednesday. In morning trading, shares of Valeant fell by 2.2% and shares of Allergan dropped by 4.4% to $157.77. Wall Street analysts from Credit Suisse and Wells Fargo said that the new Valeant offer could not be good enough. “We hoped for something more imaginative, like substantially altering the share of cash and stock Valeant will use or a more substantial increase in the value offer,” wrote Aaron “Ronny” Gal, an analyst at Bernstein Research. “The Valeant offer is rather disappointing. It does not really alter the fundamental value of the offer.”
Like a hedge fund manager promoting a short position, Allergan came out swinging against Valeant Pharmaceuticals on Tuesday, questioning whether Valeant’s low tax rate was sustainable and raising other issues surrounding Valeant’s debt-fueled acquisition strategy and accounting. The point was to undermine the appeal to Allergan shareholders of Valeant’s stock, which Valeant is using as currency for its proposed deal. Allergan’s board said on Wednesday that it will review the new Valeant proposal, but Allergan’s board and its CEO, David Pyott, have made it pretty clear they want to keep Allergan an independent company.
During a long presentation on Wednesday to promote his new offer, Valeant CEO Michael Pearson said many of Allergan’s assertion against his acquisition-driven business model were incorrect. “It was a little insulting to be called a Tyco but I guess time will tell,” Pearson said. “This industry the R&D productivity has been very very low, so how all companies grow in this industry is through making really good acquisitions and growing those acquisitions after they make them.”
Pearson, who is working with hedge fund billionaire William Ackman in this takeover effort, said he fully expects Valeant will be successful in its attempt to purchase Botox-maker Allergan. In a sign that he means business, Valeant also announced on Wednesday that it will sell several injectable treatments for facial wrinkles to Nestle for $1.4 billion. At the same time, Pearson was careful to say that he would not be putting together an all-cash deal for Allergan or bid against himself. “We are not going to keep offering against ourselves,” Pearson said. “We are still willing to sit down with management and the board to negotiate a deal, but we are not going to continue increasing our offering until we have that chance to sit down.”
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