Valeant Pharmaceuticals International, Inc. (Valeant) has put up a proposal to acquire all outstanding shares of Allergan, Inc., maker of the Botox wrinkle treatment, for a combination of 0.83 of Valeant common shares and $48.30 in cash per share of common stock of the company. Merger would create unrivaled platform for growth and value creation with leading positions in high-growth geographies and therapeutic markets. Allergan shareholders will own 43 per cent of the combined company and thereby continue to participate in the expected value creation of the combined company.
Pershing Square is the largest owner with 9.7 per cent stake in Allergan. This offer represents a substantial premium to Allergan's stock price of $116.63 on April 10, 2014, the day before Pershing Square crossed the 5 per cent schedule 13D ownership level and commenced its rapid accumulation programme.
The benefits of the merger entity will provide significant benefits to patients and physicians around the world. It will provide more than $2.7 billion in annual operating cost synergies as well as $300 million in annual R&D spend to complete future high-probability and late-stage projects. The new company will generate stable and recurring cash flows. Approximately 75 per cent of its revenue will come from durable products, 90 per cent of combined revenue is not expected to face any significant patent cliffs over the next decade and 70 per cent of business is expected to be cash-pay or third-party reimbursed, with only 30 per cent exposed to government reimbursement.
"This proposal represents an undeniable opportunity to create extraordinary value for both Allergan and Valeant shareholders by establishing an unrivaled platform with leading positions in ophthalmology, dermatology, aesthetics, dental and the emerging markets" said J Michael Pearson, chairman and chief executive officer of Valeant. "Together, we can capitalize on the inherent strengths and complementary portfolios of our two companies, while achieving significant synergies by applying Valeant's unique operating model to a combined set of assets. While the Allergan CEO and board of directors made it clear, both privately and publicly, that they were unwilling to enter discussions with us about creating a value-enhancing combination, we are hopeful that our proposal for this extremely compelling combination will enable us to engage in productive discussions."
William A Ackman, chief executive officer of Pershing Square, added, "The combination of Valeant and Allergan represents the most strategic and value-creating transaction I have ever analyzed. I strongly urge the Allergan board of directors to carefully examine the proposed transaction and enter into negotiations with Valeant so that a merger can be consummated promptly. We will be electing all-stock consideration in the transaction so that we can remain a long-term holder of the combined company."
The outlook for the rest of 2014 remains strong and Valeant has raised 2014 revenue guidance to $8.3 - $8.7 billion from $8.2 - $8.6 billion, cash EPS guidance to $8.55 - $8.80 from $8.25 - $8.75, and adjusted cash flow from operations to $2.7 - $2.8 billion from $2.4 - $2.6 billion, despite foreign exchange headwinds of approximately $0.15 of cash EPS.
Barclays and RBC Capital Markets are acting as financial advisors to Valeant. Kirkland & Ellis LLP and Davies Ward Phillips & Vineberg LLP are providing legal advice to Pershing Square. Goldman, Sachs & Co and BofA Merrill Lynch are serving as financial advisors to the Allergan and Latham & Watkins is serving as legal counsel.