By David Benoit and Liz Hoffman
Within the last month, both William Ackman and Valeant
Pharmaceuticals International Inc. had sent the Allergan Inc. board
letters seeking to negotiate a takeover. They proclaimed that
Valeant, as a bidding team with Mr. Ackman's firm, could pay more
than any other suitor because it would have more cost-cutting and
tax-saving abilities.
But Monday, less than 15 minutes after an announcement that
Actavis PLC was buying Allergan, Valeant indicated it wouldn't top
the bid. The Canadian pharmaceutical company said it wouldn't be
able to justify matching or topping Actavis's price of $219 a share
for Allergan, though it said it would continue reviewing its
options.
Valeant's latest and improved bid from May was $180 a share,
with people familiar with the matter having said they were
considering a $15-per-share bump.
Valeant Chief Executive Michael Pearson had said since the day
he launched the deal with Mr. Ackman's Pershing Square Capital
Management LP in April that he wouldn't overpay to win the
Botox-maker if another acquirer came in with a price he viewed as
too rich.
Valeant was proposing more cost-savings, pledging to cut $2.7
billion in annual costs compared with plans by Allergan and Actavis
to cut $2.3 billion. But Actavis offered significantly more in cash
for Allergan-$129.22 a share compared with Valeant's last offer of
$72 a share in cash. Both suitors were offering a combination of
cash and stock.
If the stock of Actavis drops and drags down its offer, Valeant
and Pershing Square could be back in the game, as there is no
"collar" on Actavis's share price that limits the downside risk for
Allergan. But Monday, Actavis shares were rising, up 1.7% to
$247.90, a blow to those last-gasp hopes for Valeant.
Valeant shares were up less than 1% to $135.32, while Allergan
shares rose about 5% to $209.22.
Allergan also agreed to pay Actavis 3% of the deal value, or
around $2 billion, if the tie-up collapses, according to a person
familiar with the matter. That effectively makes Allergan $2
billion more expensive if Valeant were to counteroffer.
Monday's terms will leave Actavis with a heavy debt load, though
the company said it intends to keep its investment-grade rating and
would look to reduce its debt load quickly.
Mr. Ackman and Pershing Square could push forward with their
attempt to remove the majority of Allergan's board at a special
meeting in one month. The hedge fund went to its meeting with
influential proxy adviser Institutional Shareholder Services Inc.
on Monday morning, where it was supposed to seek support in
removing the directors, according to people familiar with the
matter.
The proxy fight is still a bargaining chip in resolving ongoing
litigation between the parties about the propriety of the
Valeant/Pershing Square joint bid arrangement, one of the people
said.
Still, with Valeant unlikely to make a higher bid, Pershing
Square may be inclined to take its sizeable profits and walk away.
The duo built their position this year at an average price of about
$128.12 a share, meaning they are sitting on a profit of about $2.6
billion, according to filings. Valeant would be due to get about
$440 million while Pershing Square stands to make about $2.2
billion at the deal price.
Those profits were missed by some large Allergan shareholders
who cashed out this summer when the price started to climb. Capital
Research and Management Co., which had been the biggest shareholder
before this battle started, sold its entire stake in the second
quarter when the stock was at less than $180 a share. The
mutual-fund giant wasn't alone. Seventy six of Allergan's top 100
shareholders as of the end of March sold shares in the second
quarter, filings showed.
Valeant, which has said it wants to triple its size through
acquisitions, could turn to animal-health company Zoetis Inc. as a
plan B, people familiar with the matter have said. Mr. Ackman
teamed with another hedge fund last week to take a 10% stake in
that company.
The seven-month fight over Allergan has drawn a number of
advisers to the fray. Now that Allergan has signed a deal, advisers
will likely share in some success fee. The company has already paid
$60 million in defense fees and expenses since April, according to
regulatory filings.
It was paying financial advisers Goldman Sachs Group Inc. and
Bank of America Merrill Lynch $6 million a quarter each and was
expected to pay its proxy solicitor Innisfree $1.75 million,
filings said. It also had on its side law firms Latham &
Watkins LLP, Richards, Layton & Finger PA and Wachtell, Lipton,
Rosen & Katz. And it had hired forensic accountants FTI
Consulting and Alvarez & Marsal.
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