Allergan Again Said “NO” to Valeant

Valeant has once again made its intentions clear about acquiring Allergan. Canada-based Valeant has had its eyes on Allergan for a while now and has made another offer to acquire it. 

Allergan is a global health care company with expertise in dermatology, neuroscience, urology, etc. Its best-known product is Botox, a highly successful treatment that helps reduce wrinkles and generates about 31% of the company’s topline. Allergan is a highly attractive acquisition target for Valeant which currently focuses on neurology, dermatology and infectious diseases, and has lately been on an acquisition spree of sorts.

Allergan rejected the fresh bid and it may have a number of reasons for doing so. Management might have its fears that Valeant will slash its R&D spending and might even reduce the cost of marketing spend by cutting the size of its sales team. Valeant is not yet exposed to all the sectors that Allergan operates in and this has also raised concerns that the former might shut down some business units after the acquisition.

Valeant’s stock price is also seen to be the result of extensive acquisitions in recent times and not the result of its own performance. This coupled with the fact that Allergan is reluctant to be acquired by a company that has developed a habit of buying companies, could be why Allergan management rejected the increased bid as well.

However, this has raised fears that Valeant, which has the backing of activist investor Bill Ackman might go for a hostile takeover. Ackman is trying to get together a group of shareholders, which, coupled with his own shares have a 25% stake in the company, to put pressure on the board of directors and unseat at least six out of nine directors. He is trying to call a shareholders’ meeting in August.

Allergan can try and put off the meeting until November and hope for a white knight – a company larger than itself – with a better reputation and a stronger cash position, to come along and make a better offer. It can also buy back its shares to increase the worth of stock if it has the cash to do so. Allergan can also try and increase the dividend, to boost the stock price and make it a little bit harder for someone to launch a hostile takeover bid.