Allergan Bids for Inamed

Updated from 9:48 a.m. EST

Botox maker Allergan ( AGN) made a $3.2 billion offer on Tuesday for Inamed ( IMDC), trumping an earlier bid for the cosmetic-products company by Medicis Pharmaceutical ( MRX).

The announcement sent the share prices of the companies involved flying in different directions on heavy trading.

Inamed's stock jumped $6.84, or 9.2%, to close at $81.28 in response to the Allergan offer, which is worth $84 in cash, or 0.8498 shares of Allergan. More than 5.8 million Inamed shares changed hands, or nearly 10 times the average daily volume for the past three months.

Shares of Medicis plunged $2.97, or 10%, to $26.70 as trading volume topped 12 million shares, or 11 times the daily average for the last three months.

Medicis made a bid for Inamed in March, which was worth $75 a share, or $2.8 billion at the time. Medicis, which makes treatments for skin diseases and other products, offered $30 cash plus 1.4205 of its shares.

Allergan, which specializes in skin-care products and eye-disease medications, saw its stock skid $2.50, or 2.5%, to $96.35 in active trading. In addition, shares of Mentor ( MNT) rose 65 cents, or 1.2%, to $55.26. Like Inamed, Mentor is based in Santa Barbara, Calif., and both companies are developing silicone-gel breast implants.

Both companies have received conditional approval from the Food and Drug Administration for the implants, but neither has commented on how long it will take for them to meet the FDA's conditions.

Inamed also makes prescription skin-care products, and analysts who follow Allergan say its bid is aimed primarily at fighting Medicis in the skin-care arena.

Outbidding Medicis would "prevent the creation of a significantly stronger competitor in facial aesthetics," says Donald Ellis of Thomas Weisel Partners in a Tuesday research report.

"We believe that Inamed's breast aesthetics and obesity intervention businesses are of secondary importance to Allergan and may therefore be divested following the transaction," says Ellis, who has an outperform rating on Allergan. He doesn't own shares, but his firm says it does and seeks to do business with companies mentioned in research reports.

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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