Botox-maker Allergan rejects bid by Quebec-based Valeant Pharmaceuticals

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Botox-maker Allergan said Monday that its board of directors has unanimously rejected a multibillion dollar hostile takeover bid by Quebec-based Valeant Pharmaceuticals International Inc. and activist investor Bill Ackman.

Allergan said the stock-and-cash offer, valued recently at $48 billion, creates risks for its shareholders and doesn’t reflect its future earnings and growth.

The California pharmaceutical company said it expects to increase earnings per share by 20 to 25 per cent and continue to generate double-digit revenue growth in 2015.

“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, chairman and CEO David Pyott said in a letter to Valeant CEO Michael Pearson.

“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,” Pyott said in the letter.

Valeant (TSX:VRX) has offered US$48.30 in cash and 0.83 of a Valeant share for each share of Allergan (NYSE:AGN).

Ackman’s Pershing Square Capital Management LP — Allergan’s biggest shareholder at 9.7 per cent — has agreed to take only stock in the transaction.

Allergan Inc. stockholders would own 43 per cent of the combined company.

However, Allergan has adopted a “poison pill” defence that will allow it time to consider alternatives and potentially block the bid.

Valeant has said it plans to initiate a “shareholder referendum” of Allergan investors and may pursue a special meeting to remove some or all of the U.S. company’s board of directors.

It said that such a referendum would determine if Allergan’s shareholders want its board to negotiate with Valeant at the same time as it pursues alternatives to Valeant’s hostile takeover bid.

Valeant capped off 2013 with 25 acquisitions, including eyecare company Bausch + Lomb. Pearson has said he would like to make Valeant one of the world’s top five pharmaceutical companies.

The company has been focusing on dermatology, eye care, esthetics, non-prescription and niche products. Among its many acquisitions has been Edmonton-based Afexa Life Sciences, maker of the cold and flu remedy Cold-FX.

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