Monday, November 3, 2014

Allergan to Valeant: Thanks, But No Thanks

This morning, Allergan (AGN) finally had its answer for Valeant (VRX), which is seeking to acquire it in partnership with Pershing Square. The answer was no.

Bloomberg

Allergan said that it didn’t believe Valeant’s strategy of big spending cuts–which Allergan’s CEO dubbed “cutting and slashing”– would produce long-term value for shareholders, and said Allergan could grow at a 20% to 25% clip on its own.

Citigroup’s Liav Abraham wonders if this is all Allergan has to fend off Valeant:

Notwithstanding the value proposition of AGN on a stand-alone basis, we wonder whether today's revised targets are sufficient to convince AGN shareholders against a VRX/AGN combination given investors' investment horizons. We anticipate that the AGN Board is considering additional strategic alternatives for the company, including more aggressive deployment of AGN's robust balance sheet and/or seeking a "white knight" bid.

Aegis Capital Corp.’s Raghuram Selvaraju notes that the news isn’t good for Valeant, but he doesn’t think Allergan will have much luck finding a savior:

Nevertheless, while we believe that the rejection vote is a setback to Valeant, we remain confident that Valeant will either ultimately succeed in its bid to acquire Allergan near-term or seek to consummate another transaction elsewhere. We note that thus far it does not appear that Allergan has much strategic wiggle room, having already been rebuffed by potential white knights such as Sanofi S.A. (SNY) and Johnson & Johnson (JNJ) and with little chance, in our view, of making a meaningful acquisition of its own, such as the purchase of Shire (SHPG).

Sterne Agee’s Shibani Malhotra thinks most Allergan shareholders will support Allergan over Valeant:

Top Services Stocks To Buy Right Now

Most investors we have spoken to agree that there are business risks to Valeant's acquisition of Allergan and that, over the long run, Allergan is likely more valuable as an independent company. Their support for the merger however will depend on the ultimate price being offered by Valeant and whether they believe that AGN can get to this level as a standalone company over the next 18-24 months. The situation is confounded by the large stock component of Valeant's offer; as Allergan’s management stated, based on current terms, shareholders are essentially buying VRX. Valeant management and investors supporting the transaction expect VRX to rally significantly on this deal which, in turn, would increase the price paid to AGN shareholders.

Read Barron’s take on the deal here.

Shares of Allergan have dropped 1% to $159.75 at 3:32 p.m. today, while Valeant has fallen 1% to $129.85, Sanofi has gained 1.2% to $52.61, Johnson & Johnson has dipped 0.4% to $100.50 and Shire is off 0.8% at $166.76.

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