Ackman Pushes Even Harder For Valeant-Allergan Deal

Ackman Pushes Even Harder For Valeant-Allergan Deal
Bill Ackman Photo via <a href="" target="_blank">InsiderMonkey</a>, Flickr (CC BY-ND 2.0)

Valeant Pharmaceuticals Intl Inc (NYSE:VRX) and Bill Ackman have increased their bid for Allergan, Inc. (NYSE:AGN) yet again. In a press release, Valeant said that this new offer is for $72 per share in cash and .83 shares of Valeant for every Allergan share. After the announcement, shares of both companies surged, with Valeant stock initially climbing more than 3% and Allergan shares popping by more than 5%.

Bill Ackman REALLY wants the deal

Along with the sweetened price, there were other elements of the better offer. Valeant Pharmaceuticals Intl Inc (NYSE:VRX) said it’s offering a “contingent value right for DARPin of up to $25 per share in value.” The company also said that Bill Ackman’s Pershing Square agreed to forego all cash in the deal and take 100% of its consideration in Valeant shares using “an exchange ratio determined based on yesterday’s closing stock prices” of both companies.

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In addition, Pershing Square gets $20.75 per share less consideration than other shareholders of Allergan, Inc. (NYSE:AGN). This means other shareholders of Allergan receive “substantially more value and cash.” The proposal is contingent on “good faith negotiations.” Valeant Pharmaceuticals Intl Inc (NYSE:VRX) has planned another conference call and webcast to talk about the proposal on June 2 at 8 a.m. Eastern.

Shares of Valeant Pharmaceuticals Intl Inc (NYSE:VRX) rose as much as 4% while and Allergan, Inc. (NYSE:AGN) shares declined by as much as 1% as investors questions Valeant’s increased bid for Allergan. The company had sweetened its hostile bid to $58.30 per share this week. Analysts at both BMO Capital Markets and Susquehanna Financial Group both continue to see both companies as positive, particularly if the merger does happen. They were already positive on Valeant’s increased bid from earlier this week.

Valeant addresses Allergan’s concerns

In a report dated May 29, 2014, BMO Capital analyst Alex Arfaei said he thinks Valeant Pharmaceuticals Intl Inc (NYSE:VRX) did a good job of addressing the concerns raised by Allergan, Inc. (NYSE:AGN). He thinks Valeant also increased visibility of the deal, which he believes should increase investor confidence, whether the merger with Allergan happen or not.

The analyst believes shares of both companies fell because investors saw lower likelihood that the two companies would come to an agreement.

Valeant explains the stock to cash proportion

One of the concerns raised by shareholders of Allergan, Inc. (NYSE:AGN) was the proportion of stock versus cash in the offer. Arfaei believes that Valeant made its case well, saying that it used the pro-forma earnings per share of the combined company and the multiple Wall Street is most likely to assign to it. Overall, Valeant estimates that its improved offer could assign a valuation of between $180 and $200 per share of Allergan with a multiple of between 13.1 and 15.7 or between $210 and $215 with a higher multiple of 16.8 times, plus the CVR.

He sides with Valeant Pharmaceuticals Intl Inc (NYSE:VRX) on this argument and thinks that the company’s new offer could gain the interest of Allergan, Inc. (NYSE:AGN) shareholders. He said the big assumption here is that Valeant will be able to deliver its promised $2.7 billion in operating expenditure synergies to achieve the pro-forma earnings per share. He thinks the company will come close to that.

Combined company may be undervalued

In a separate report dated May 29, 2014, Susquehanna analysts Andrew Finkelstein and Zenah Hasan reiterated their Positive ratings on both Valeant Pharmaceuticals Intl Inc (NYSE:VRX) and Allergan, Inc. (NYSE:AGN). They believe that if the two companies merged, it would unlock value for Allergan and possibly Valeant as well. In fact, they think the combination is undervalued.

They note that yesterday’s share price declines in both companies showed that investors were uncertain about the new bid and whether it will be enough to close the deal. The Susquehanna team said this uncertainty “overshadowed” what they also believed as a solid presentation from Valeant Pharmaceuticals Intl Inc (NYSE:VRX). They think Allergan, Inc. (NYSE:AGN) could still have additional maneuver throughout this process. Overall though, they like “the upside optionality of moves AGN cam make and otherwise see a path to completion for the VRX deal,” which they believe should have a higher final price.

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