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.

Speculation

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

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.

Names that have been bandied about as potential Allergan targets include Jazz Pharmaceuticals PLC, which is based in Ireland but operates out of Palo Alto, and Salix Pharmaceuticals Ltd., which operates out of Raleigh, N.C.

Salix

Salix was back in the picture last week after investor-website reports said some of its larger shareholders wanted it to back out of a proposed tax inversion deal for Cosmo Pharmaceuticals SPA, which primarily operates in Italy, in favor of selling itself to a larger company such as Allergan. The reports indicated that investors controlling at least 25% of Salix’ shares, which had a market value of just under $10 billion last week, were threatening to block the Cosmo deal.

Allergan declined comment on the buzz about Salix and other speculations.

Valeant could not be reached for comment.

One veteran analyst, David Maris, who follows Allergan for New York-based BMO Capital Markets, painted a more robust picture of Allergan’s prospects for independence last week.

“We continue to think Allergan is in the catbird seat with multiple deal options,” Maris said in a report issued after a meeting with Allergan Chief Executive David Pyott and Dr. Scott Whitcup, executive vice president of research and development.

Allergan is in “no rush to get a deal done” prior to a Dec. 18 special meeting, wrote Maris.

At the meeting, shareholders will vote for Valeant and Ackman’s proposal to remove a majority of Allergan’s board.

The analyst said that Pyott and Whitcup indicated that some shareholders who have gone along with the call for the special meeting will nonetheless vote in favor of Allergan remaining independent. Maris concurred with that outlook after conducting follow-up discussions with others.

“Based on our discussion with several holders, we believe that we have independently confirmed that there are holders participating in the meeting who state to us they intend to vote against Valeant’s measure,” he said.

Maris reiterated his view that Allergan shareholders “should reject the Valeant offer, for the value and the uncertainty of the stock component, especially given Valeant’s debt levels, IRS audit and a potential SEC investigation reported by several news outlets.”

Aversion to Inversion

The analyst said Pyott emphasized that any acquisition by Allergan would be driven by strategy rather than an opportunity to lower corporate taxes. The chief executive told Maris that large “tax arbitrage is likely not sustainable” via inversion deals and that the federal government will eventually crack down on the practice.