Allergan Again Unanimously Rejects Valeant's Revised Unsolicited Proposal

Allergan has once again rejected the revised unsolicited proposal from Valeant and Pershing Square Capital Management, setting the stage for a lengthy hostile takeover battle. Allergan announced Tuesday that its board of directors, after consulting with its independent financial and legal advisors, has unanimously determined that the revised proposal by Pershing Square and Valeant substantially undervalues the company, creates significant risks and uncertainties for the stockholders of Allergan, and is not in the best interests of the company and its stockholders. “The investment community has recognized the revised long-term growth outlook Allergan provided on May 12, 2014, and appropriately raised valuations for a standalone Allergan. We do not believe Valeant's proposal reflects Allergan's growth prospects, nor does it offer sufficient or certain value to warrant discussions between Allergan and Valeant,” David E.I. Pyott, Allergan's Chairman of the Board and Chief Executive Officer, said in a company news release. “The board is confident that the company will create significantly more value for stockholders than Valeant's proposal. We look forward to updating stockholders on or around the time of our second quarter earnings announcement." In a letter to Valeant CEO Michael Pearson, Mr. Pyott reiterated the company's concerns, calling Valeant's business model “unsustainable” and and accusing Valeant of relying on “serial acquisitions and cost reductions, as opposed to top-line revenue growth and operational excellence.” He also cited Valeant's “anemic growth, which Allergan believes is primarily driven by significant price increases” and Valeant's unrealistic research and development synergy targets, which “would destroy Allergan's long-term value.” Allergan on Tuesday also filed an updated investor presentation with the Securities and Exchange Commission and posted the presentation under the “Investors” section of the company's website with additional detail on the considerations behind the Allergan board's rejection. In response, Valeant released a statement accusing Allergan's board of continuing to throw out inaccurate and misleading statements about Valeant. “The Allergan Board continues to demonstrate an unwillingness to engage with Valeant, which is the minimum it would need to do to properly evaluate the value of our offer. Valeant's offer to combine with Allergan will create substantial value for both companies' shareholders, and we look forward to giving Allergan shareholders the opportunity to speak for themselves regarding their support for this transaction,” the Valeant statement read. Under the latest bid, Valeant is offering about $52.7 billion in cash and stock. The bid values Allergan at about $177.10 a share as of Monday's close—made up of a cash component of $72 a share and 0.83 share of Valeant. The bid includes the possibility of an additional $25 a share, depending on the future revenue of Allergan's DARPin drug candidate for wet AMD. As part of the latest offer, Mr. Ackman said he would receive only Valeant stock as part of the deal, and do so at a discount to other Allergan shareholders. Last week, Valeant and hedge fund manager William Ackman's Pershing Square Capital Management called for a special shareholder meeting to remove most of Allergan's board. Pershing plans to solicit for the special meeting starting June 30, expecting shareholders to consider the proxy for the meeting as early as August 7. Allergan would be able to delay the meeting until November.