Valeant, Ackman Join Forces in $45B Allergan Bid

NEW YORK (The Deal) -- Valeant Pharmaceuticals International (VRX) and activist investor Bill Ackman on Tuesday revealed the details of their combined hostile effort to acquire Botox-maker Allergan (AGN), a move that is the well-known insurgent's first hostile acquisition partnership and one that would bring together two mid-sized pharmaceutical companies if consummated.

Valeant, a Canadian pharmaceutical company, said Tuesday it offered to swap each Allergan stock for $48.30 in cash and 0.83 shares of Valeant common stock. People familiar with the offer say that its total value is roughly $45 billion.

Ackman's fund, Pershing Square Capital Management, a $13 billion activist fund, revealed late Monday that it had acquired most of a 9.7% Allergan stake for $3.2 billion. The stake, which is currently all in options, is the largest single investment ever made by the activist investor. It was made as part of a joint venture known as PS Fund 1 LLC with Valeant's U.S. unit, which contributed $75.9 million to the investment. Valeant is based in Laval, Quebec.

Valeant noted that the offer represents a substantial premium to Allergan's stock price of $116.63 a share on April 10, before Ackman disclosed his fund had acquired close to 10% of the company.

Valeant on Tuesday unveiled a powerpoint presentation explaining the rational for its offer to buy the Irvine, Calif.-based company. It suggested that a combined Valeant-Allergan would have $6.3 billion in sales, making it the second largest player in the global eye health industry after Alcon.

In the presentation, Valeant noted that Pershing has become Allergan's largest shareholder supporting the deal. It added that the insurgent fund has done "extensive due diligence" on Valeant and is committed both to getting a deal done as well as becoming a long-term shareholder of the combined company. In another Securities and Exchange Commission filing, Valeant said it would consult with Pershing Square before making any material decisions involving a business combination with Allergan.

According to people familiar with the situation, the groundwork for Ackman's Trojan horse stake in Allergan was laid when a former Johnson & Johnson (JNJ) executive introduced the hedge fund manager to Valeant. The discussion between the activist and the $42 billion market cap pharmaceutical company resulted in Valeant and Pershing Square forming their joint venture fund on February 9th, according to an SEC filing.

That co-bidding arrangement came after Valeant had been trying, for about a year-and-a-half, to get Allergan to come to the table and negotiate a friendly deal, according to industry observers.


Allergan said in a late Monday filing that it has had no discussions with either Valeant or Pershing Square with respect to their efforts. An Allergan spokesperson declined to comment and the company has no poison pill anti-takeover defense - yet. However, Allergan said late Monday in a statement that its board "intends to evaluate" any offer with its financial and legal advisors.

Valeant has a history of making acquisitions that resulted from activist pressure. Case in point: The Allergan offer comes after Voce Capital Management, a smaller insurgent fund, helped drive the sale of Obagi Medical Products and Solta Medical to Valeant last year. In addition, another well-known activist investor, Jeff Ubben, who runs ValueAct Capital, has a 5.7% stake in Valeant. Mason Morfit, a ValueAct partner, sits on its board.

Ackman, in the past, has typically acquired large minority stakes in companies and agitated for change, which sometimes include pressing a target firm to find a buyer. On occasion the activist has launched proxy contests to drive his efforts at businesses. However, the Allergan investment is Pershing Square's first ever participation in a hostile bid for a company. In effect, with this insurgency, Ackman has skipped the initial agitation step and already found a willing buyer for the company.

In addition, Pershing has never made a hostile bid on its own. However, the activist has teamed up with other investors in the past to defend against a hostile tender offer as well as to press for changes at corporations.

People familiar with the situation said that Valeant wanted Pershing to participate in the offer because the activist investor was more familiar with aggressive encounters with target companies than it was. Valeant also needed a partner because its credit rating may have been impacted had it sought to make the acquisition on its own, people familiar with the situation said.

According to people familiar with Pershing, Ackman was able to bring both financing heft and activist expertise to the offer. Pershing has agreed to a $400 million commitment to invest in the deal at a 15% discount prior to the consummation of the transaction. The fund also made a commitment to retain a $1.5 billion stake in the combined company for one year after the deal was consummated. The activist fund's familiarity with the rules of the road for activism made it an experienced in the type of issues that come up in a hostile offer.


Pershing expects to convert its "deep-in-the-money" call options to stock after it receives approval from the Federal Trade Commission, which it expects in roughly a month.

Valeant, which has a made a series of acquisitions in recent years, acquired Bausch & Lomb in 2013 for about $8.7 billion. It acquired Medics Pharmaceutical Corp. in 2012 for $2.6 billion. Valeant, which reported $5.8 billion in revenue last year, has $600 million cash and cash equivalents as of December, acceding to Bloomberg. Moody's Investors Services in June, 2013, assigned a B1 rating to a Valeant senior unsecured note offering and a Ba1 rating to two senior secured loans.

Barclays and RBC Capital Markets have offered to finance a $15.5 billion cash portion of the acquisition.

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