Valeant Raises Cash Portion of Allergan Offer As Stock Price Sinks

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Valeant Pharmaceuticals Intl Inc (NYSE:VRX) (TSE:VRX) raised the stakes in its hostile bid for Allergan, Inc. (NYSE:AGN), to $58.30 per share, bringing the total bid to $166.16 per share while at the same time executing a separate deal with Nestle to shed some of Valeant’s skin care products and raise cash.

After upping cash portion, deal for Allergan still highly dependent on Valeant stock value

In upping the ante in the cash portion of a $50.4 billion cash and stock deal, Valeant Pharmaceuticals Intl Inc (NYSE:VRX) (TSE:VRX) seeks to mitigate claims the stock portion of the Valeant offer is substandard.  As reported yesterday in ValueWalk, Allergan aggressively attacked Valeant’s business model and the stability of its management, seeking to expose a weakness in the Valeant offer: the stability of its stock price.

In a letter to Allergan, Inc. (NYSE:AGN) CEO David Pyott today, Valeant Chairman and CEO J. Michael Parson sought to defuse the tension and suggested the two sides should meet.  “It appears based on Allergan’s recent public statements that you have a fundamental misunderstanding of our business model and its performance,” Pearson wrote in the letter made public today.

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Opposites not attracting in this relationship

Valeant Pharmaceuticals Intl Inc (NYSE:VRX) (TSE:VRX) 76 and Allergan are at the opposite end of the spectrum in several regards. Valeant is a cost-cutting roll-up firm that seeks to slash spending, particularly in research and development, and generate immediate bottom line results for shareholders such as activist hedge fund investor William Ackman, who helped orchestrate Valeant’s takeover bid and invested in 9.7 percent of Allergan stock before the details of the buyout were made public.  Robert Khuzami, the former director of enforcement at the Securities and Exchange Commission and now a lawyer in private practice, advised Ackman on the legality of the sale, publically proclaiming the deal was legal before SEC enforcement staff had reviewed the situation. Ackman has remained relatively silent on the matter in recent weeks.

Shortly after Valeant Pharmaceuticals Intl Inc (NYSE:VRX) (TSE:VRX) announced its unwanted advance, Allergan, Inc. (NYSE:AGN) implemented a poison pill defense designed to thwart Valeant’s efforts. Allergan, Inc. (NYSE:AGN)’s tactics to derail Valeant’s advances include attacking the structure of the deal, which is still heavily weighted towards using Valeant stock as currency to purchase Allergan shares.  Boosting the cash reserves of Valeant slightly is a separate deal where Valeant will sell a portion of its skin care products business to Nestle for $1.4 billion, as reported in the New York Times.

Stock price of both parties sinks on revised bid

Perhaps reflecting pessimism over the value of the Valeant Pharmaceuticals Intl Inc (NYSE:VRX) (TSE:VRX) offer – or a nod to Allergan, Inc. (NYSE:AGN)’s aggressive resistance tactics, Allergan stock was down nearly $6 trading at $159, below the Valeant offer cash and stock offer or $166.16.  For its part, Valeant Pharmaceuticals was down near 3% trading near $126.

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Mark Melin is an alternative investment practitioner whose specialty is recognizing a trading program’s strategy and mapping it to a market environment and performance driver. He provides analysis of managed futures investment performance and commentary regarding related managed futures market environment. A portfolio and industry consultant, he was an adjunct instructor in managed futures at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009, where he was a registered associated person (National Futures Association NFA ID#: 0348336). Mark has also worked as a Commodity Trading Advisor himself, trading a short volatility options portfolio across the yield curve, and was an independent consultant to various broker dealers and futures exchanges, including OneChicago, the single stock futures exchange, and the Chicago Board of Trade. He is also Editor, Opalesque Futures Intelligence and Editor, Opalesque Futures Strategies. - Contact: Mmelin(at)valuewalk.com