Potential deals are once again taking center stage as Irvine-based Allergan Inc. continues its fight to keep its independence.
Allergan is battling a hostile takeover bid by Canada-based Valeant Pharmaceuticals International Inc. and activist investor Bill Ackman’s Pershing Square Capital Management LP. The cash-and-stock offer was valued at about $50 billion late last week—barely a premium over Allergan’s market value, and not enough to draw more than letters of rejection from Allergan’s board.
The would-be raiders have prompted Allergan to make adjustments, though. The company revised its earnings outlook upward through next year based in part on a cost-cutting plan that will include 1,500 layoffs, with many expected at its Irvine headquarters.
The hostile bid also has kept Allergan on the hunt for acquisitions, something Chief Executive David Pyott had on his to-do list before Valeant and Ackman started their push in April.
Last week’s speculation on Wall Street had Allergan as a potential buyer, as well as a possible target for an acquirer other than Valeant.
Aaron Gal of New York-based Bernstein Research said last week that he was surprised another bidder for Allergan has not yet stepped forward given the drugmaker’s market value, which remained over $50 billion last week.
“This probably has something to do with Allergan’s lack of interest in selling and many organizations are not interested in hostile transactions,” Gal said in a research report. “However, if/when Allergan management exhausts other options and comes to realize combination is in their shareholders’ best interest, their best option is to conduct an auction process (maybe a quiet one).”
Actavis PLC, a New Jersey based drugmaker with a history in OC, “may be a very good fit with Allergan, based on strong selling culture, management expertise in eye care and complementary skills in business development and cost controls,” Gal said, adding that Big Pharma companies such as GlaxoSmithKline PLC in the U.K. and France-based Sanofi SA might also be interested in Allergan.
Actavis, a branded and generic drugmaker, has annual sales of $8.7 billion and had a recent market value of about $63 billion. It was founded by Dr. Allen Chao, an Anaheim Hills resident, and was previously known as Watson Pharmaceuticals Inc. The company was based just over the Orange-Riverside county line in Corona before moving to New Jersey in 2011.
Allergan, meanwhile, is believed to be looking for a deal that would put it out of Valeant’s reach. The Canada-based bidder has around $17 billion in debt on its books and is believed to have little room to borrow more to sweeten its bid.