Botox maker Allergan rejects Valeant's $45.7-b hostile bid

US Botox maker Allergan Inc today rejected the hostile takeover offer from Canada's Valeant Pharmaceuticals International Inc, saying that the $45.7-billion bid substantially undervalued the company.

''After a comprehensive review, conducted in consultation with its financial and legal advisors, the Allergan board concluded that the proposal substantially undervalues Allergan, creates significant risks and uncertainties for the stockholders of Allergan, and is not in the best interests of the company and its stockholders,'' the California-based company said in a statement.

Valeant, Canada's biggest drug maker and one of the most aggressive acquirers, had in late April teamed up with activist investor William Ackman and tabled a unsolicited $45.7-billion cash and stock bid for Allergan. (See: Valeant tables hostile $45.7 bn bid for Botox maker Allergan)

Valeant's offer is $48.30 in cash and 0.83 in stock for each share of Allergan share, totaling to $161.34.

The bid immediately sparked a poison pill defence from Allergan, which adopted a one-year stockholder rights plan effective 22 April and declared a dividend distribution of one preferred share purchase right on each outstanding share.

Allergan had then said that the poison pill defence ''is not intended to prevent an acquisition of the company on terms that the board considers favourable to, and in the best interests of, all stockholders, rather, it aims to provide the board with adequate time to fully assess any proposal.''

David E.I. Pyott, Allergan's chairman and CEO said in a letter written to Michael Pearson chairman & CEO of Valeant, ''In addition to substantially undervaluing our Company, your proposal includes a large stock component, which we believe is a risk for Allergan stockholders due to the uncertainty surrounding Valeant's long term growth prospects and business model.''

''Valeant's strategy runs counter to Allergan's customer focused approach. In particular, we question how Valeant would achieve the level of cost cuts it is proposing without harming the long term viability and growth trajectory of our business. For those reasons and others, we do not believe that the Valeant business model is sustainable.''

Speaking to shareholders and analysts in New York after tabling the bid, Pearson said that Allergan's board had refused to discuss a merger, and when asked whether he would consider changing his offer to an all-cash offer, Pearson said Valeant would not, and indicated that his company would not pay whatever it takes to get Allergan. "If someone wants to come in and pay some ridiculous cash price, that's their choice."

But a successful Allergan deal would more than double the size of Valeant and make it one of the largest pharmaceutical companies in the world, in line with Pearson's aim of making the company into one of the five largest pharmaceutical firms by market value by the end of 2016.

Post offer, Allergan is reported to have contacted companies including Sanofi, Johnson & Johnson and Bayer AG to see if they would be interested in a deal.

Founded about 60 years ago, Allergan is a global specialty pharmaceutical company whose product range includes ophthalmic pharmaceutical, dermatology and neurological products.

Apart from Botox, Allergan's dry-eye drug Restasis generated about $940 million, its breast-implant business $378 million and $100 million through Latisse, its prescription drug that increases the length of eyelashes.

Allergan, which spends about 17 per cent or about $1 billion a year of its revenue on research and development of new drugs, has 11,400 employees and manufacturing plants in Texas, Ireland, and Costa Rica.

Its sales are projected to grow every year to $9 billion in 2018 from $6.3 billion in 2013, according to the average of analysts' estimates compiled by Bloomberg.

Valeant, which has a history of aggressive deal making, is a multinational specialty pharmaceutical company that develops a broad range of pharmaceutical products, primarily in the areas of dermatology, eye health, neurology, and branded generics.

Valeant has a product portfolio of about 490 products, and has two drugs in the top 200 drugs by sales in the US. Its main markets are in the US, Canada, Mexico, Brazil, Europe and Australia.

The company, which has a market cap of C$50.6 billion and annual revenues of $5.8 billion, does not spend billion of dollars on R&D, but instead acquires rivals with established products and quickly integrates and cut costs in the acquired company and moves on to the next deal.

It has made over 60 acquisitions since 2008.