For the second time, Allergan, Inc. (NYSE:AGN) has formally rejected the $46 billion unsolicited takeover offer from Valeant Pharmaceuticals Intl Inc (NYSE:VRX) (TSE:VRX).  Allergan, which previously rejected a Valeant takeover bid over one year ago, said the deal would create risks for Allergan’s stock holders, Valeant has undervalued Allergan and Valeant’s business model is unsustainable, according to a Wall Street Journal report.

This time Allergan, Inc. (NYSE:AGN) teamed with activist hedge fund manager William Ackman of Pershing Square Capital Management, who acquired a 9.7% stake in Allergan before the deal was announced. Ackman has generated nearly $1 billion in profit on that trade thus far.  Allergan adopted a poison pill defense in an attempt to thwart the deal whereby if an unapproved investor purchases more than 10% of the shares other stockholders could then buy discounted shares, diluting the value of the aggressor’s holdings.

Allergan – Valeant Deal questioned

In questioning the value of the deal Valeant Pharmaceuticals Intl Inc (NYSE:VRX) (TSE:VRX) is offering, Allergan, Inc. (NYSE:AGN) is said to be questioning the highly leveraged nature of the deal – 75% of the value of the new company would be in stock – as well as attacking Valeant’s business model.  Valeant’s strategy is to roll up various biotech companies then slash costs to the bone – most particularly research and development – while emphasizing sales and marketing.  This strategy has been attacked as a short term strategy that does not encourage medical advancements. Botox manufacturer Allergan has a history developing and innovating new products, making a combination a philosophical culture clash.

For its part Allergan, Inc. (NYSE:AGN) said Monday earnings per share is expected to increase as much as 25% in the coming year and the firm expects to see double-digit revenue growth.  Analysts polled by Thomson Reuters, however, have lowered expectations of a 17% increase in earnings and a 9% jump in revenue, according to the report.

Increasing pressure

Valeant Pharmaceuticals Intl Inc (NYSE:VRX) (TSE:VRX), in keeping with the activist investor strategy, has been escalating pressure on Allergan to succumb to its advances.  The company is pushing for a special board meeting with the goal of removing all or some of Allergan, Inc. (NYSE:AGN)’s board members, taking the battle to the shareholders in what could likely be a public fight for control of the company.  Valeant had been traveling the country to meet with Allergan’s top shareholders in a bid to persuade them to support Valeant’s plans.