* Cephalon shares rise to $75.50, above $73/shr offer
* Valeant CEO: would walk away if lack of investor support
* Pearson says could raise bid after looking at books
* Valeant shares up 10 pct
(Adds comment on Valeant shares)
By S. John Tilak and Lewis Krauskopf
TORONTO/NEW YORK, March 30 Valeant
Pharmaceuticals (VRX.TO) (VRX.N) may walk from its $5.7 billion
offer for U.S. drugmaker Cephalon CEPH.O within a month if it
can't persuade shareholders to back the deal.
But Chief Executive Michael Pearson also said Valeant might
be willing to pay more for its cash-rich target, which would
expand Valeant's drug line-up into cancer and pain therapy, if
Cephalon can persuade him it's worth it.
Valeant offered $73 a share for Cephalon late on Tuesday.
Analysts debated whether the price was too rich, but
Cephalon shares surged more than 28 percent to as high as
$75.50 on Wednesday, signaling investors' belief that a higher
bid could be in the offing.
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"While we are willing to consider a higher price if due
diligence supports this, we will remain very disciplined on
price," Pearson said on a conference call with analysts. "The
question is, what is Cephalon worth? This is not an exercise of
'how much can you afford to pay?'"
Insisting that the bid process would not drag on, he added:
"We would think that a month from now we should know."
HARD TO VALUE
Analysts are divided over the value of Cephalon, which
faces the loss of U.S. exclusivity for its top-selling Provigil
sleep-disorder drug next year.
The company had hoped to switch users to a newer form,
Nuvigil, but analysts are disappointed in the sales so far.
Cephalon said it would respond to Valeant's proposal next
week. The company has rebuffed private approaches from Valeant
on previous occasions.
"There's a lot of things that on the surface make sense,"
CRT Capital Group analyst Tim Chiang said. "It's a fair bid
that Valeant has offered."
Valeant stock was up 11 percent on on Wednesday, its
highest level since Canada's Biovail bought Valeant last
September for $3.3 billion and took its name.
Analysts said the Cephalon deal would boost Valeant's
earnings, helping it move away from its specialization in
branded generics and dermatology and neurology treatments.
"If they walk away from the deal, the downside is the stock
goes back to where it was," said Stifel Nicolaus analyst
Pearson, who is known for seeking out cheap buys that he
can clean up to increase value, promised more than $300 million
in cost savings.
Cephalon's gross margins are around 80 percent, which are
higher than Valeant's, said Chiang, who also said Valeant could
sell off some Cephalon businesses.
Cephalon has strong cash flow, an increasingly popular
cancer drug in Treanda and several other products that would
fit with Valeant's, including a branded generics business. It
also has a promising pipeline of drugs in development.
Valeant made its move less than four months after
Cephalon's founder and longtime CEO, Frank Baldino, died from
complications associated with leukemia and chief operating
officer Kevin Buchi took over as CEO.
Pearson's tight time frame is in stark contrast to the
nine-month hostile takeover bid for U.S. biotech Genzyme Corp
GENZ.O by France's Sanofi-Aventis (SASY.PA).
Pearson said Valeant would take its offer directly to
shareholders to try to get a deal done quickly, and will
propose replacing the Cephalon board.
Fidelity and T. Rowe Price, top shareholders in both
Cephalon and Valeant, "on average" seem pretty pleased with the
strategy, he said.
Valeant would need to raise about $6.7 billion in debt to
fund the deal, and it says Goldman Sachs & Co has provided a
highly confident letter for the full amount of the financing.
Pearson, who took over the old Valeant and turned it around
before the takeover by Biovail, said he was willing to look for
other ways to invest Valeant capital if he fails to win over
(Writing by Pav Jordan; editing by Janet Guttsman and Peter