$53 Billion Offer: 3rd Time the Charm for Valeant?

Valeant has a better offer for Allergan, thanks in part to a billionaire hedge fund manager. Will it be enough to finally bring Allergan to the deal table?

May 31, 2014 at 7:36AM

Canadian drug-maker Valeant Pharmaceuticals (NYSE:VRX), known for being the drug-industry's busiest dealmaker since 2010, upped its bid to buy Allergan (NYSE:AGN) on Friday. While it's certainly not a done deal yet, shares in Allergan jumped nearly 6% Friday, while Valeant shares added 1.5%.

Valeant's latest offer for Botox-maker Allergan is worth more than $53 billion, but it's contingent on Allergan entering into good faith negotiations without delay. J. Michael Pearson, CEO of Valeant, made it clear he would not raise the bid again unless Allergan committed to talks, saying, "We are not going to keep offering against ourselves."

Allergan has steadily rebuffed Valeant up to this point, not liking Valeant's cost-slashing way of doing business. With no love lost between these two companies, Valeant hinted it may go fully hostile by encouraging shareholders to call a special meeting to throw out Allergan's board, according to the New York Times. Wells Fargo Securities senior analyst Larry Biegelsen said he believes the latest offer is "at least sufficient to get Allergan to the negotiation table."

The lure for Valeant is Botox, which is one of the few drugs out there Valeant believes is worth a significant R&D investment. For reference, Valeant spends less than 3% of its revenue on R&D, compared to an average 16% in the industry.

Valeant has acquired 75 companies since 2008, but Botox-maker Allergan may be its juiciest prize. Once (and perhaps still) known mostly as a wrinkle-fighter, Botox is now being used for a variety of treatments, and more still to come -- Allergan is developing Botox in a series of new indications, including phase 2 trials for indications as diverse as depression, osteoarthritis pain, and premature ejaculation.

Whether Valeant will get its hands on Botox is still up for grabs. Earlier this month, Allergan rejected an offer of $46 billion, claiming it undervalued the company. On Wednesday last week, Valeant increased that bid, and two days later, they increased it again--surprising analysts. The latest deal offers cash of $72 per share and 0.83 shares of Valeant stock. That's up substantially from the $58.30 (and 0.83 shares) that Valeant offered on Wednesday.

Another new development is that Allergan's largest shareholder, Pershing Square Capital Management, is furthering Valeant's latest bid. Billionaire hedge fund manager, Bill Ackman, CEO of Pershing Square, agreed to receive no cash if the latest deal goes through, according to Forbes magazine. "Early this morning, I called Mike and offered to give up $600 million of value to the other Allergan shareholders and exchange our shares for Valeant stock if Valeant were prepared to increase its offer to the other Allergan shareholders," Ackman said in a statement.

Allergan has repeatedly complained that Valeant's threat to cut R&D to the bone would throttle future sales growth. For its part, Valeant believes Allergan's management spends far too much, and has promised investors it will extend Allergan's reach into developing markets as well as speed up growth for Allergan products.

The new bid includes a right for Allergan shareholders to receive an additional $25 a share, tied to the future revenue of Allergan's developmental eye-treatment. An additional inducement is that Pearson is promising that the combined company will have $2.7 billion in synergies (much of it coming from slashing administrative and R&D costs), as well as a single-digit tax rate.

The merger, if it goes through, would double the size of Valeant, making it one of the largest specialty pharmaceutical companies in the world. Allergan's board unanimously rejected the previous bid, but both Sanofi and Johnson & Johnson refused to swoop in and play the white knight, and Allergan is running out of options. About $141 billion in corporate takeovers in the pharmaceutical industry were announced or proposed in the past twelve months, according to Bloomberg, an amount that is four times the volume of the previous year.

At the very least, this latest deal is going to be hard for Allergan to walk away from.

Will this stock be your next multi-bagger?
Give us five minutes and we'll show how you could own the best stock for 2014. Every year, The Motley Fool's chief investment officer hand-picks one stock with outstanding potential. But it's not just any run-of-the-mill company. It's a stock perfectly positioned to cash in on one of the upcoming year's most lucrative trends. Last year his pick skyrocketed 134%. And previous top picks have gained upwards of 908%, 1,252% and 1,303% over the subsequent years! Believe me, you don't want to miss what could be his biggest winner yet! Just click here to download your free copy of "The Motley Fool's Top Stock for 2014" today.

Cheryl Swanson has no position in any stocks mentioned. The Motley Fool recommends Johnson & Johnson and Valeant Pharmaceuticals. The Motley Fool owns shares of Johnson & Johnson and Valeant Pharmaceuticals. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information