(Recasts with Ackman partnering with Valeant to buy Allergan)
By Svea Herbst-Bayliss, Rod Nickel and Olivia Oran
BOSTON/NEW YORK, April 21 Activist investor
William Ackman teamed up with Canadian drugmaker Valeant
Pharmaceuticals International Inc to make a joint run
at buying wrinkle-treatment maker Allergan Inc,
according to security filings on Monday.
The move to acquire Allergan, which is worth around $42
billion, is highly unusual as activist investors typically buy
stakes and then agitate for strategic change, such as a sale of
One source familiar with their plans said it comes after
Valeant tried for over a year to court Allergan but was turned
away. Ackman and his $13 billion hedge fund, Pershing Square,
have a long record in pushing companies to do his bidding, which
could help Valeant buy Allergan.
Allergan and a spokeswoman for Pershing Square declined to
Valeant, which has been on a buying spree and most recently
acquired Bausch & Lomb Holdings, said that a merger with
Allergan would create an "unrivaled platform for growth and
value creation," and that it would soon finalize its proposal
and then announce it.
A deal would bring together two mid-sized pharmaceutical
companies with expertise in skin care and eye care products.
Allergan, which also has a lucrative portfolio of ophthalmic
drugs to treat conditions such as glaucoma and dry eye, is
larger by revenue, reporting $6.3 billion in sales last year.
Valeant reported $5.8 billion in revenue last year.
Allergan's longtime CEO, David Pyott, is also an avid
dealmaker who built Botox into a blockbuster by continuously
testing it for new uses.
Morningstar analyst David Krempa said the deal would also
bring a "massive amount" of potential operating synergies from
the two companies' overlap, and Valeant's lower tax rate in
Allergan shares rose 6 percent to close at $142 per share.
Valeant climbed 3.24 percent to close at $126.01.
Still, one Valeant shareholder thought the deal might be too
pricey. Allergan shares closed on Monday up 28 percent so far in
2014, trading at all-time highs.
"It's almost impossible to turn it into a high return
investment if you pay that kind of price," said Glenn Greenberg,
managing director of Brave Warrior Advisors, a Valeant
BUYING UP A STAKE
Pershing Square began buying Allergan shares in February,
spending roughly $4 billion, its biggest-ever investment, to
amass a 9.7 percent stake, according to a regulatory filing on
Monday. Pershing used money it had freed up by trimming its
stake in Beam Inc and getting out of General Growth
Properties Inc, one of its biggest winners ever.
In the regulatory filing, Ackman said Valeant will pay with
a combination of stock and cash and expects the cash component
to total around $15 billion. Barclays and Royal Bank of
Canada have said they are ready to help with financing.
Pershing Square does not shy away from controversy, having
waged a very public battle against nutrition and weight loss
company Herbalife with a $1 billion short bet unveiled
in December 2012.
This year, Pershing Square is delivering some of the hedge
fund industry's best returns with a gain of roughly 10 percent
through the middle of April, a Pershing Square investor said,
while the broader Standard & Poor's 500 index is largely flat.
Hedge fund ValueAct, also known for pursuing activist
strategies, sits on the Valeant board but has historically shied
away from getting involved in hostile takeovers.
(Additional reporting by Bill Berkrot, Ransdell Pierson;
Editing by David Gregorio, Jonathan Oatis and Lisa Shumaker)