By David Benoit, Dana Mattioli and Jonathan D. Rockoff
Activist investor William Ackman and Valeant Pharmaceuticals
International Inc. on Tuesday revealed their offer to acquire the
wrinkle treatment maker Allergan Inc.
Valeant offered to swap each Allergan share for $48.30 in cash
and 0.83 Valeant shares. Based on Valeant's closing price Monday,
the deal values Allergan at about $152.89 a share, or a total of
$45.6 billion.
Valeant said the offer represents a substantial premium to
Allergan's price of $116.63 on April 10, the day before Mr.
Ackman's Pershing Square Capital Management L.P. crossed the 5%
ownership level and began its rapid accumulation program.
Pershing owns a 9.7% stake in Allergan. The firm has agreed to
elect only stock consideration in the transaction and intends to
remain a significant long-term shareholder of the combined
company.
The deal aimed at buying the maker of wrinkle fighter Botox
represents an unorthodox alliance between activist investor William
Ackman and a serial acquirer of specialty drugs.
The deal, if successful, would create a behemoth in the global
eye-care and skin-care drug industries. Each company has a
stock-market capitalization of more than $40 billion.
Laval, Quebec-based Valeant, which owns brands such as Bausch
& Lomb, had been trying woo Allergan for some time, people
familiar with the matter said, when Mr. Ackman approached it about
working together on a deal.
The acquisition attempt would likely be hostile, the people
said.
Mr. Ackman's Pershing Square Capital Management LP has built a
9.7% stake in Allergan since February, according to the SEC filing.
Valued at about $4 billion, the stake represents his biggest
investment ever, people familiar with the matter said.
Investors cheered the possible combination, sending shares of
Valeant and Allergan higher in early trading Tuesday. Allergan
shares rose 20% to $171, which is above the offer price and
suggests that investors expect a higher offer down the road.
Allergan in a statement late Monday said its board would
evaluate any offer or proposal received by Valeant and Pershing
Square, and that it "has had no discussions with either Valeant or
Pershing Square with respect to this matter."
The tag-team effort is unusual because activist investors
typically don't approach a potential acquirer before investing in a
target. They generally take stakes in companies and then push for
financial or operational change in a bid to boost the company's
performance and its share price.
An activist who wants to see a company get sold generally
presses management to embark on a sale process.
By teaming with Valeant, Mr. Ackman--a noted and often
controversial activist investor--essentially eliminated a step,
finding a willing buyer for a target.
The strange bedfellows came together after Mr. Ackman was
introduced to Valeant by a Pershing Square employee who knows
Valeant Chief Executive Michael Pearson. Mr. Ackman suggested he
could help the Canadian company do a deal at some point.
Valeant and Mr. Ackman later signed an agreement in February to
work together; Valeant told him it was interested in Allergan, of
Irvine, Calif.
Valeant was interested in Allergan in part because it saw more
than $2.5 billion of cost savings if the companies were to pair up,
said people close to Valeant.
Aligning with Mr. Ackman gives Valeant a nearly 10% head start
in getting Allergan shareholders on its side. Plus, Mr. Ackman has
experience running hostile corporate campaigns.
Still, the alliance represents an unusual crack in a typically
sturdy wall between activists and companies. While companies have
been showing greater receptiveness to activist approaches in recent
years, in general corporate America views activist investors as
adversaries, not allies.
Valeant has lined up investment banks Barclays PLC and Royal
Bank of Canada for financing, the filing said.
A former McKinsey & Co. consultant, Mr. Pearson buys
companies and eliminates much of the research-and-development costs
while selling products through Valeant's existing sales force. He
has also taken advantage of relatively cheap debt and the lower tax
rates accorded companies based in certain countries overseas.
Mr. Pearson said earlier this year that he wants Valeant to be
among the top five pharmaceutical companies in the world by the end
of 2016.
With Valeant's growth fueled by acquisitions, some investors and
deal makers say the company's complexity makes its stock hard to
value.
Valeant and Allergan compete against each other in the global
eye-care and cosmetic-treatment markets. Allergan is best known for
products such as the anti-wrinkle treatment Botox, breast implants
and a product that increases the length of eyelashes.
It also sells prescription drugs treating eye conditions like
glaucoma and conjunctivitis. It has been facing the threat of
competition for key products such as its Restasis dry-eye drug, one
of its top-selling products.
Last year, Allergan reported $6.3 billion in revenue. Valeant
notched $5.8 billion in 2013 revenue.
Mr. Pearson has said he likes the eye-treatment market because
it is global and because governments and private health insurers
are willing to pay for the treatments.
He has also said he likes the market for cosmetic-treatment
products, because patients are willing to pay out of pocket.
Valeant also sells a variety of eye-care and aesthetic products,
many acquired as part of its purchases of Bausch & Lomb and
Medicis Pharmaceutical Corp. in recent years.
In competition with Allergan, Valeant sells its own version of a
botulinum toxin wrinkle treatment, called Dysport. And Valeant,
through its Bausch & Lomb acquisition, has been developing
competitors for Allergan's dry-eye and other treatments.
Valeant would be prepared to sell some assets to allay any
antitrust concerns, said a person familiar with the deal.
Mr. Pearson took the helm of Valeant in 2008 after a 23-year
career at McKinsey where he worked alongside CEOs on turnarounds,
acquisitions and strategy.
"We spend less than 5% of our revenues on research and
development," said Mr. Pearson in a 2012 interview with the
Journal. "Instead, our innovation comes from acquiring companies
and products that are already approved and in the market, so we
avoid the risk associated with R&D."
Liz Hoffman contributed to this article.
Write to David Benoit at david.benoit@wsj.com, Dana Mattioli at
dana.mattioli@wsj.com and Jonathan D. Rockoff at
jonathan.rockoff@wsj.com
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