* ISTA rejects $6.50-a-share offer
* ISTA shares jump 70 percent, Valeant slips 0.7 pct (Adds ISTA comment, updates shares)
TORONTO (Reuters) - ISTA Pharmaceuticals Inc , which makes eye medicines, on Friday rejected an unsolicited $314 million takeover bid from Valeant Pharmaceuticals International, calling it "grossly inadequate."
But acquisition-hungry Valeant said it would be willing to sweeten its all-cash offer, worth $6.50 a share, if it was allowed to conduct due diligence "and found additional value." The offer represents a 67 percent premium to ISTA's closing price on the New York Stock Exchange on Thursday.
"The proposed $6.50 per share price represents a meaningful premium to ISTA's recent trading performance, and we believe it represents a compelling opportunity for ISTA's shareholders in light of the continuing challenges facing ISTA," Valeant CEO Michael Pearson said in a statement.
ISTA said in a release that it had received a letter on Nov. 23 from Valeant outlining its proposal to acquire all of its outstanding shares. The company said it notified Valeant on Wednesday that its board of directors had rejected the bid as "grossly inadequate and not in the best interest of ISTA shareholders."
Valeant, in turn, on Friday reaffirmed its non-binding proposal, Irvine, California-based ISTA said.
ISTA's shares have plummeted over the last seven months as sales of one of its key eye treatments for inflammation and pain have been hurt by the launch of a generic version by rival Mylan Inc.
ISTA's shares, which touched $11.39 in April this year, have since fallen 66 percent. The shares closed at $3.89 on Thursday on the New York Stock Exchange.
The stock jumped to $6.62 in morning trading on Friday following the announcement of the Valeant bid. Valeant shares slipped 0.7 percent in Toronto.
Last month, Valeant said it had agreed to buy Australia's iNova Pharmaceuticals from private equity firms Archer Capital and Ironbridge for A$625 million. It also recently completed the C$88 million acquisition Canadian cold and flu medicine maker Afexa Life Sciences.
Valeant said it has made its offer to ISTA public to give ISTA shareholders an opportunity to decide whether "their board and management should engage with Valeant in a meaningful and productive dialogue."
"The proposed acquisition is consistent with Valeant's growth-through-acquisition strategy, irrespective of therapeutic focus," Wells Fargo analyst Michael Tong wrote in a note to clients.
Earlier this year, Valeant dropped a $5.7 billion bid for Cephalon Inc after Israel's Teva Pharmaceutical Industries Ltd topped its offer to buy the U.S.-based drugmaker.
Mississauga, Ontario-based Valeant said Morgan Stanley is acting as its financial adviser on the proposed ISTA deal, with Skadden, Arps, Slate, Meagher & Flom LLP acting as its legal adviser.
Reporting By Euan Rocha and Ransdell Pierson, editing by Gerald E. McCormick, John Wallace, Dave Zimmerman