Irvine, Calif.-based Botox maker Allergan (UNKNOWN:AGN.DL) is desperately trying to fend off a takeover bid from Valeant Pharmaceuticals (NYSE:BHC), a company with a history of buying rivals and slashing their work forces. In an interesting twist, this deal is being driven by activist investor Bill Ackman, who has viciously attacked Allergan's management for refusing to agree to a deal.

In a recent letter to Allergan's board, for instance, expressing his displeasure, Ackman said, "Your actions have wasted corporate resources, delayed enormous potential value creation for shareholders, and are professionally and personally embarrassing for you."

Allergan's board, on the other hand, responded in kind: "... the Offer is grossly inadequate, substantially undervalues Allergan, creates significant risks and uncertainties for Allergan stockholders and is not in the best interests of Allergan and its stockholders."

To top it off, Allergan's brass has repeatedly called Valeant's business model that focuses on acquiring other companies "unsustainable." 

Who is right in this war of words? 
Valeant has now upped its offer to a reported $200 a share (approximately $59 billion), meaning a deal would come at a stunning 72% premium compared to where Allergan shares were trading prior to this news hitting the Street. I've argued previously that, based on Allergan's projected 2015 sales growth and cost-cutting measures, $64 billion wouldn't be out of the question. Valeant's latest offer gets them close to this number, yet Allergan's board has remained resolute in its attempts to find an alternative buyer, such as Actavis (NYSE:AGN). In fact, Allergan's board refuses to even consider the offer, according to Valeant's board of directors.

Turning to Allergan's claim that Valeant's business model is unsustainable and overly reliant on acquisitions for growth, Valeant's third-quarter numbers cast serious doubt on this claim. In the third quarter, Valeant saw strong organic growth from segments such as Bausch & Lomb, a company that was acquired over a year ago. 

Allergan's courtship with Actavis also suggests that the concerns over an acquisition-focused business plan are overblown. Actavis has been one of the most active players in the M&A game over the past two years, and has taken on billions in debt as a result.

So the sticking point really looks like Valeant's history of cutting jobs following a buyout, more than a valuation or integration issue. All told, I think Bill Ackman has some valid points, and Allergan's board is simply hoping to delay the deal in hopes a so-called "White Knight" can be found.

Actavis' obstructionist strategy isn't without merit
Even though Allergan's statements about Valeant's offer and business model may not hold up to the light of day, the company does have the right, and perhaps the obligation, to explore any and all options on behalf of its shareholder base. If a deal with Actavis can get done at comparable levels, for instance, this route looks like a more appealing option, given Actavis's stellar growth prospects. In the third quarter, Actavis' non-GAAP EPS grew by an astounding 53% year over year, and this trend looks likely to continue as more branded drugs begin to launch. Put simply, Allergan's board may look stubborn to outsiders, but they appear, to me, to have the best interests of their shareholders and employees in mind. 


George Budwell has no position in any stocks mentioned. The Motley Fool recommends Valeant Pharmaceuticals. The Motley Fool owns shares of 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.