Allergan snubs Valeant s bid

The on-going excitement within the pharmaceuticals sector continues as US-based Botox maker, Allergan, turns down the takeover bid from Canada’s Valeant Pharmaceuticals.

As a reminder, Valeant, together with Allergan shareholder Bill Ackman – whose company (Pershing Square) owns a 9.7% stake in the company – had offered to acquire Allergan in April in a transaction worth around $46bn.

Under the terms of the deal, each Allergan share would be exchanged for $48.3 in cash and 0.83 shares of Valeant common stock.

Following a review of the proposal, Allergan announced today (12^th May) that the offer from Valeant “substantially undervalues Allergan and is not in the best interest of stockholders”.

Then, perhaps by way of convincing its shareholders to hold tight, Allergan also announced that in 2015 the company expects to increase earnings per share (EPS) by 20% to 25%, as well as generate double-digit revenue.

That’s aside from the company’s pledge to produce double-digit sales growth and an EPS compound annual growth rate (CAGR) of 20%, over the next five years.

Well, Allergan has some record of growing its top-line at double digit rates – the company’s 2013 revenue of around $6.3bn grew 11.7% (in dollar terms) compared to the previous year.

Our back-of-the-envelope calculation, though, indicates that the company’s EPS has grown at a CAGR of some 11% over the last five years.

Nonetheless, Allergan reckons its pledge can be achieved due to strong business momentum, driven by a “wide array” of recent approvals and expected near-term approvals, among others.

The rejection’s not entirely surprising

Indeed, expectations were that the bid would likely be rejected – particularly given Allergan’s swift move to adopt a one-year Stockholder Rights Plan, following the approach from Valeant.

Among a number of effects, the plan essentially prevents Mr Ackman’s Pershing Square from ramping up its stake to 10% (or above) in Allergan.

Allergan’s shares are currently down around 1% (down some 6% from a peak reached earlier this month on the back of the takeover bid).  That said, Allergan is currently trading at some $159 per share, which is still around 4% above Valeant’s full per share offer.

Of course, the story is unlikely to end here. Valeant looks like it has the motivation to make another move, and, could well table a sweet enough offer.