Valeant Pharmaceuticals International, Inc. (VRX) announced that it has increased its offer price to acquire Allergan (AGN) by 21%.
Valeant had proposed in Apr 2014 that each Allergan share would be exchanged for $48.30 in cash and 0.83 shares of Valeant's common stock.
The proposal was then made in alliance with Pershing Square Capital Management, L.P, which is the largest shareholder of Allergan.
Valeant has now increased its cash consideration of the offer by $10.00 per share to $58.30. The stock component of the offer remains the same.
The offer will allow Allergan shareholders to own more than 43% of the combined company.
In addition, Valeant has offered a contingent value right of up to $25.00 per share for Allergan's ophthalmology pipeline candidate, DARPin. The candidate is currently in phase II. Valeant also stated that it will invest up to $400 million for DARPin's development as well as retain Allergan’s employees involved in the same. Valeant will also pay 40% of the net sales of DARPin (potentially estimated at $20 billion by Allergan on May 12, 2014) after recoupment of the development investment.
Our Take
The increase in offer price was expected as Allergan had rejected Valeant's proposal earlier in the month. Allergan believes that the offer substantially undervalues the company, creates significant risks and uncertainties for stockholders, and is not in the best interests of the company and its stockholders.
Allergan's key product, Botox, continues to drive momentum. Concurrent with rejecting Valeant's offer, Allergan said that it expects earnings per share to increase by 20%–25% in 2015 accompanied by double digit top-line growth. Over the next five years, Allergan expects double-digit sales growth and earnings per share compounded annual growth of 20%.
However, shares of Valeant and Allergan were down 2.31% and 5.39% respectively as the new offer price fell short of the investors’ expectations. We expect investor focus on further updates on the proposed offer.
Valeant currently has a Rank #3 (Hold) while Allergan carries a Zacks Rank #1 (Strong Buy).
Right now, stocks like Gilead Sciences (GILD) and Alexion Pharmaceuticals (ALXN) look attractive. While Gilead Sciences carry a Zacks Rank #1, Alexion Pharma is a Rank #2 (Buy).
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