Investors seem to be warming to the possibility of a combination of Irvine-based Allergan Inc. and “white knight” Actavis PLC.
Shares of Allergan, which makes Botox and other drugs, closed near record highs for much of last week in the wake of Allergan’s confirmation via a Securities and Exchange Commission filing that it’s in talks with a “third party” that may lead to negotiations.
Sources have identified the party as Actavis.
Allergan shares carried a market value of $58.6 billion as of last week. The drugmaker closed each day last week near the $200 per share threshold—a number that hostile suitors Valeant Pharmaceuticals International Inc. and activist investor Bill Ackman’s Pershing Square Capital Management LP have said would be a benchmark, provided Allergan comes to the negotiating table.
Ackman late last week called for an open auction of Allergan.
Actavis, which has tax-friendly headquarters in Dublin and operates out of New Jersey, has previously been mentioned as a possible alternative to the Valeant-Pershing Square deal. The bid was valued at about $54 billion.
Allergan has rejected all of Valeant and Pershing’s entreaties, saying the offers undervalue the company.
It declined comment beyond the SEC filing.
Pershing didn’t respond to a request for comment.
Actavis Chief Executive Brent Saunders didn’t directly mention any potential for a deal with Allergan in an interview with Bloomberg about his company’s interest in doing deals. He did speak well of the drugmaker, however, and indicated Actavis remains on the lookout for acquisitions.
“Allergan is a terrific company with great assets and a great team of people,” he said.
Actavis and Allergan have some overlap in their product lines, primarily in dermatology, urology and neurology. The latter categories are big growth drivers for therapeutic Botox.
Actavis’ drug lineup includes Namenda, a treatment for Alzheimer’s disease; gastrointestinal drugs Asacol and Delzicol; Linzess, a treatment for irritable bowel syndrome; birth control pill Lo Loestrin Fe; antidepressant Viibryd; and blood pressure drug Bystolic, which it picked up in its buy of New York-based Forest Laboratories Inc. this year.
Cough Syrup
Actavis also made a prescription cough syrup containing an antihistamine known as promethazine and a narcotic codeine. The syrup has a purple color and has been used as a recreational drug by hip-hop musicians, but it was pulled from the market this year.
Some on Wall Street look favorably on a potential combination of Allergan, which has annual sales of $6 billion, and Actavis, with annual sales of more than $8 billion and a recent market value of $66.1 billion.
Industry watchers have said Actavis would be a better fit for Allergan because Saunders, 44, and Allergan Chairman and Chief Executive David Pyott, 61, are advocates of research and development, in contrast to 54-year-old Valeant Chief Executive Mike Pearson’s focus on cutting costs.
Also cheering some analysts was Actavis’ third-quarter report, which came last week and showed a $1.3 billion adjusted profit on sales of $3.63 billion.
“While investors have questioned Actavis’ ability to generate synergies while continuing to grow revenues in a deal with Allergan, today’s results demonstrate that the company can deliver on both the top and bottom line even in the earliest stages of integration,” said Shibani Malhotra, an analyst for Birmingham, Ala.-based investment bank Sterne, Agee & Co., in a note addressing Actavis’ third-quarter results.
Malhotra in an earlier note wrote that she believed investors were “overlooking the simple fact that Actavis’ management team has substantial experience managing branded pharmaceutical assets,” and used Saunders’ experience at Bausch & Lomb Inc. and Forest Laboratories as an example.
“Further, we believe the Actavis team’s strong background in branded pharmaceuticals leaves the company in a strong position to manage Allergan’s brand-focused aesthetic and therapeutic platform,” she wrote.
Actavis has already made a pair of large deals during the past two years—its $25 billion buy of Forest Laboratories and a $8.5 billion tax inversion deal for Irish company Warner Chilcott PLC last year.
Actavis has OC roots—it was founded as Watson Pharmaceuticals Inc. by Anaheim Hills resident Allen Chao. The company was based just across the Riverside County line in Corona before moving to New Jersey in 2011, when it also changed its name.
