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Allergan Bids for Inamed

An Allergan acquisition of Inamed would represent diversification, adding for instance breast implants, as well as fortification of its skin-care business, says Ken Kulju, of Credit Suisse First Boston. He has a neutral rating on Allergan. Additionally, he applauds Allergan's Inamed bid as a clever defense against a Medicis challenge to the Botox franchise.

He doesn't own shares of the companies. However, his firm says it does or seeks to do business with companies covered in its research reports.

The potential sales impact of silicone-gel implants can't be ignored. However, U.S. sales of these implants have been restricted since 1992 to a handful of uses, such as for women undergoing breast reconstruction after mastectomies and women whose implants had ruptured. The restrictions reflect tougher FDA requirements that manufacturers provide long-term safety data to support applications for their devices.

Both Inamed and Mentor sell implants in foreign markets for cosmetic purposes. They also sell saline-filled implants in the U.S. for cosmetic purposes.

Allergan, based in Irvine, Calif., has a market capitalization of $12.67 billion vs. Medicis' $1.45 billion. Allergan bragged that its offer for Inamed is superior because it features more cash, greater liquidity, "with closure at least as fast as or faster than the Medicis transaction, and with a stronger pro forma balance sheet." Medicis had no immediate comment.

"It's a better strategic fit," says Jayson T. Bedford of Adams Harkness who maintained his buy rating on Inamed. If Allergan prevails, it will have to pay a $90 million break-up fee to Medicis, Bedford says. He doesn't own shares. His firm says it intends to seek or receive investment-banking fees from companies mentioned in research reports.

That's a price worth paying, Bedford says in a research note, because Allergan's offer is "superior from both a financial and strategic sense." It's always possible that Medicis could raise its bid, "but we feel Allergan has deeper pockets and seems committed to this opportunity."

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