Valeant raises offer for the second time this week for Allergan to $53.8 bn

With no competing bids on the table, Valeant Pharmaceuticals International raised its unsolicited takeover offer for the second time this week for Allergan Inc to $53.8 billion on condition that the Botox maker agrees to talk on a merger.

The sweetened offer of $182 per share comes barely two days after it raised its April offer of $161.34 per share to $166.16 per share, which was still lower than the $180-$200 per share that investors and some analysts were expecting. (See: Valeant raises Allergan bid to $49.44 bn: analysts say new offer still too low)

Under its latest offer, Quebec-based Valeant is offering to pay $72 in cash and 0.83 share of Valeant stock for each Allergan share - up from Wednesday's $58.30 and 0.83 share of Valeant stock for each Allergan share.

The total value of its cash and stock bid is now $182 per share.

Allergan's stock closed 5.7 per cent higher at $167.46 yesterday, giving it a market value of $49.8 billion.

Valeant's new offer also contains the contingent value right of up to $25 per share related to the potential cumulative 10-year sales of Allergan's experimental eye drug Darpin, which it offered on Wednesday. This offer is worth around $7.2 billion in total.

Valeant said that it would invest up to $400 million to help develop Darpin and retain Allergan employees to bring the drug to market.

The revised bid has the backing of Bill Ackman's Pershing Square Capital Management, Allergan's biggest shareholder with a 9.7-per cent stake, which has said that it would take only the stock part of the offer and forego the cash component worth $600 million.

Ackman said he has offered to take stock for his Allergan shares if Valeant increased the cash component in its offer to other shareholders. "We believe that our gesture to the other Allergan owners makes an extraordinarily strong statement about our belief in the long-term value of this highly strategic business combination.''

Allergan, based in Irvine, California, said that its board of directors would carefully review the latest offer.

Although its latest revised offer looks credible, analysts say that a deal is far from over and Valeant may have to once again raise its bid, but at least for now it may persuade Allergan to come to the negotiating table.

Allergan has rejected a deal with Valeant saying that the transaction substantially undervalues the company, creates significant risks and uncertainties for its stockholders.

David Pyott, Allergan's chairman and CEO had earlier said that Valeant's proposal includes a large stock component, which he believes 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,'' he had said.

Allergan's anti-wrinkle and chronic migraine treatment drug Botox is the driver for the deal. Botox generated about $2 billion of Allergan's total 2013 revenue of $6.3 billion in 2013.

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.

It 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, has made over 60 acquisitions since 2008.

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