Allergan rejects Valeant Pharma's 'cut and slash' takeover

Mon May 12, 2014 2:52pm EDT
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By Caroline Humer

(Reuters) - U.S. drugmaker Allergan Inc (AGN.N: Quote) on Monday rejected Valeant Pharmaceuticals International Inc's (VRX.TO: Quote)(VRX.N: Quote) $47 billion takeover offer, saying its proposed cost cuts were too steep.

Allergan, which makes the popular anti-wrinkle treatment Botox, said it believed Valeant's business model was unsustainable and that the offer was too risky because of uncertainty about the company's long-term growth.

"Valeant's model of cutting and slashing really doesn't work for more than a very short period of time," Allergan Chief Executive Officer David Pyott said during a conference call with investors to explain the rejection.

He said Valeant's plan for billions of dollars in cost cuts would prevent Allergan from delivering growth that it could produce on its own, and he set a target of a 20 percent to 25 percent increase in earnings per share in 2015.

Valeant and activist investor Bill Ackman, who has a stake of almost 10 percent in Allergan, made an unsolicited cash and stock offer for the company in April.

The next step in the Allergan-Valeant battle for control is for Valeant to raise its cash and stock offer and to present the offer to shareholders, analysts said on Monday.

"They're going to have to take this directly to shareholders and frankly this looks like a big media battle," said David Amsellem, an analyst at Piper Jaffray who covers both companies. "I think that Valeant really, really needs Allergan."

Allergan and Valeant have both said that they are currently meeting with large shareholders. In April, Valeant said that excluding Ackman's stake, about 56 percent of Allergan shareholders were also Valeant shareholders.   Continued...

David Pyott, CEO of Allergan, speaks during the Reuters Health Summit in New York, May 9, 2011. REUTERS/Brendan McDermid