NEW YORK (TheStreet) - Valeant Pharmaceuticals (VRX) said Tuesday morning it plans to improve its takeover offer for Allergan (AGN) at the company's May 28 investor day. The move comes a day after Allergan rejected an unsolicited bid orchestrated by Valeant and hedge fund Pershing Square Capital Management, and called the company's business model unsustainable.
"[W]e plan to improve our offer for the company - to demonstrate our commitment to getting this deal done. We are prepared to pay a full and fair price, but, consistent with our track record, we will remain financially disciplined," Valeant CEO Michael Pearson said on Tuesday, in a letter to Allergan shareholders.
Pearson also addressed some of Allergan's criticism and noted that Valeant may present why its business model, is sustainable and could continue to deliver value to shareholders. "Traditionalists have questioned our operating model since we began our journey more than six years ago. We will provide further details about our operating model, business strategy, and transaction cost synergies, in addition to addressing the concerns raised yesterday by Allergan on its webcast," Pearson said.
Allergan accused Valeant of being overly austere on its research and development budget, and attempted to prove such a strategy had resulted in non-existed organic growth across the company. The company also said Valeant's recent string of acquisitions may mask poor performance from previous deals such as a multi-billion dollar takeover of Medicis.
"Our model works, whereas Valeant's model of cutting and slashing really doesn't work for more than a very short period of time and that shows up in the same-store low growth that they produce," Allergan CEO David E. Pyott said on a Monday conference call.
Ackman Rallies Shareholders
Valeant appears to be willing to press its bid, which valued Allergan at $48.30 a share in cash and 0.83 Valeant shares, on two fronts. It seems the company may be willing to raise its offer, although the mix of cash and stock is still unclear. The cash component of Valeant's offer came to about $15.5 billion.
Meanwhile, with Bill Ackman's Pershing Square Management as a 9.7% shareholder in Allergan stock, Valeant thinks it can rally support of a takeover among the company's investor base.
"We will not stop our pursuit of this combination until we hear directly from Allerganshareholders that you prefer Allergan's "stay the course plan" to a combination with Valeant. I ask that all of you continue to provide us with your feedback," Valeant said on Tuesday.
On Monday, Pershing Square asked that Allergan disclose a host of information about its shareholder base so that the hedge fund could open a direct dialogue with investors.
Activists Re-Writing Rules
Pershing Square Capital Management may be re-writing the rules of activist investing after teaming up with Valeant on a takeover proposal for Allergan.
The effort is the first that counts an activist hedge fund investor as a crucial piece and it raises the prospect of similar marriages between activist investors and deal-seeking corporations looking to press an unsolicited merger.
On April 21, Pershing Square disclosed it had acquired over $4 billion worth of Allergan's stock, or approximately 9.7% of the company's outstanding shares, as part of an unsolicited effort to merge the two pharma industry giants.
And then on April 22, Valeant released details of its bid, including estimates of $2.7 billion in annual operating synergies in the event of a merger and the prospect of a 20-cent dividend.
While Allergan is best known for its Botox treatments, Valeant Pharmaceuticals has emerged as one of the fastest growing generic drug manufacturers in the world.
Valeant's initial offer contained a cash component of $15.5 billion with the rest of the transaction financed with stock. Such a merger would be among the largest pharmaceutical deals and values Allergan at over $45 billion.
Barclays and Royal Bank of Canada agreed to financing commitments to cover the cash portion of a deal.
"The combination of Valeant and Allergan represents the most strategic and value-creating transaction I have ever analyzed," Ackman said in a statement in April. Ackman said Pershing would elect to take all-stock in a transaction as part of a long-term investment.
Allergan shares fall less than 1% to $159.72, recovering some losses in Monday trading. Valeant shares also fell less than 1% to $130.16 in Monday.
Shares in both companies have gained sharply since the deal was first announced, indicating it may be important for Allergan to prove its standalone prospects outweigh the benefits of a merger with Valeant.
Pershing Square Capital Management declined to comment.
-- Written by Antoine Gara in New York.