By Jonathan D. Rockoff, Dana Mattioli and Liz Hoffman
Actavis PLC is nearing a deal to acquire Allergan Inc. in a
tie-up that would likely be the year's largest and could help
shield Botox maker Allergan from a hostile takeover.
The boards of Actavis and Allergan are expected to meet in
coming days to review a cash-and-stock takeover, people familiar
with the matter said, and an announcement is expected this week.
The price under discussion couldn't be learned, but likely would be
at a premium to Allergan's market capitalization of $59
billion.
Closing such a deal is still a big if, however, in part because
hostile suitor Valeant Pharmaceuticals International Inc. could
improve its offer for Allergan, which Valeant already has done
several times. And buying Allergan would be a chunky bite for
Actavis, whose $64 billion market value is barely bigger than its
target's. Allergan's shares received a boost this year from the
possibility that it would be bought.
Still, the advancement of the companies' talks--The Wall Street
Journal in September was first to report on the
negotiations--reflects many of the big trends in deal making.
Interest in health-care transactions has been particularly intense
this year, which has been a robust one for mergers and
acquisitions.
Also, Actavis, as well as Valeant, was an early adopter of the
so-called inversion deal strategy that has boomed in popularity, in
which a U.S. company pursues an overseas merger to capture a lower
foreign tax rate and other overseas tax perks. Once based in
Parsippany, N.J., Actavis inverted to Ireland when it bought Warner
Chilcott last year. Analysts have predicted that a combination with
Actavis could shave hundreds of millions of dollars next year from
the tax bill of Allergan, which is based in Irvine, Calif.
Actavis's status as foreign-domiciled has affected the timing of
the deal since its board has to assemble in Ireland to bless such
decisions, a person familiar with the matter said.
A merger of the two would remake the drug industry, creating a
pharmaceutical company selling brand-name and generic drugs for
stomach, eye, skin and other conditions. Allergan is best known for
its sales of wrinkle treatment Botox. Actavis's top-selling drug is
Alzheimer's treatment Namenda. A combined company would ring up
about $23 billion a year in sales, putting it around the top 10 of
pharmaceutical companies by revenue.
"This is going to be a Big Pharma," said Ronny Gal, an analyst
at Sanford C. Bernstein & Co.
The deal also would mark the latest twist in one of the most
dramatic takeover battles in recent years--a fracas that has
ignited debate over the role and cost of research and development
at large drug makers.
Valeant and activist investor William Ackman since April have
been seeking to seal a deal with Allergan, an unusual alliance that
teamed a corporate suitor with an activist hedge fund. Mr. Ackman's
Pershing Square Capital Management LP built a nearly 10% stake in
Allergan before Valeant made its bid.
Allergan declined to enter negotiations with Valeant, calling
the cash-and-stock offer too low and too risky. Allergan has
derided Valeant as a corporate raider that grew by buying
profitable companies and slashing costs, especially for the
research that Allergan says is crucial for growth.
Valeant has pushed back against that portrayal, saying it
chooses not to fritter away money on fruitless research and has
delivered growth through strong management and cost controls.
Valeant's most recent bid was valued at $53 billion, though
Valeant has said it was willing to boost its offer.
Valeant and Pershing Square will wait to see the exact terms of
any Actavis deal and how the stock market reacts before deciding
how to respond, people familiar with the hostile suitors said.
Valeant, which has said it wants to triple its size through
acquisitions, could turn to animal-health company Zoetis Inc. as a
Plan B, people familiar with the matter have said. That also would
unite the company with Mr. Ackman, who recently teamed with another
hedge fund to take a 10% stake in Zoetis.
Other potential combinations have also sprung up around Allergan
and Actavis this year, creating a complex web in which some
companies have shifted roles between predator and prey.
This summer, for example, Allergan held talks to buy Salix
Pharmaceuticals Ltd. Such a deal would have made Allergan bigger
and more complicated for Valeant to buy, but those talks ended.
And while Actavis explored a deal for Allergan, Pfizer Inc. for
a time pursued a takeover of Actavis, a person familiar with the
matter has said. Actavis rejected such a deal, the person said.
Actavis has been hungry, earlier this year buying Forest
Laboratories Inc. for $25 billion.
A deal between Actavis and Allergan likely would be the largest
in a robust year for corporate matchmaking. Other blockbuster deals
in the works this year--such as Pfizer's attempted $120 billion
takeover of AstraZeneca PLC and AbbVie Inc.'s $54 billion proposed
acquisition of Shire PLC--have collapsed.
There had been $367 billion in health-care deals this year
through last Monday, the most on record for that period since at
least 1995, according to Dealogic.
David Benoit contributed to this article.
Write to Jonathan D. Rockoff at Jonathan.Rockoff@wsj.com, Dana
Mattioli at dana.mattioli@wsj.com and Liz Hoffman at
liz.hoffman@wsj.com
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