Purchase of Botox Maker Would Challenge Hostile Bid by Valeant and Ackman
The boards of Actavis and Allergan are expected to meet in coming days to review a cash-and-stock takeover. ENLARGE
Fallon/Bloomberg News By Jonathan D. Rockoff, Dana Mattioli and Liz Hoffman Updated Nov. 16, 2014 7:23 p.m. ET 1 COMMENTS
Actavis PLC is nearing a deal to acquire Allergan Inc. in a tie-up that would likely be the year’s largest and could help shield Botox maker Allergan from a hostile takeover.
The boards of Actavis and Allergan are expected to meet in coming days to review a cash-and-stock takeover, people familiar with the matter said, and an announcement is expected this week. The price under discussion couldn’t be learned, but likely would be at a premium to Allergan’s market capitalization of $59 billion.
Closing such a deal is still a big if, however, in part because hostile suitor Valeant Pharmaceuticals International Inc. could improve its offer for Allergan, which Valeant already has done several times. And buying Allergan would be a chunky bite for Actavis, whose $64 billion market value is barely bigger than its target’s. Allergan’s shares received a boost this year from the possibility that it would be bought.
Still, the advancement of the companies’ talks—The Wall Street Journal in September was first to report on the negotiations—reflects many of the big trends in deal making. Interest in health-care transactions has been particularly intense this year, which has been a robust one for mergers and acquisitions.
Also, Actavis, as well as Valeant, was an early adopter of the so-called inversion deal strategy that has boomed in popularity, in which a U.S. company pursues an overseas merger to capture a lower foreign tax rate and other overseas tax perks. Once based in Parsippany, N.J., Actavis inverted to Ireland when it bought Warner Chilcott last year. Analysts have predicted that a combination with Actavis could shave hundreds of millions of dollars next year from the tax bill of Allergan, which is based in Irvine, Calif.
Actavis’s status as foreign-domiciled has affected the timing of the deal since its board has to assemble in Ireland to bless such decisions, a person familiar with the matter said.
A merger of the two would remake the drug industry, creating a pharmaceutical company selling brand-name and generic drugs for stomach, eye, skin and other conditions. Allergan is best known for its sales of wrinkle treatment Botox. Actavis’s top-selling drug is Alzheimer’s treatment Namenda. A combined company would ring up about $23 billion a year in sales, putting it around the top 10 of pharmaceutical companies by revenue.
“This is going to be a Big Pharma,” said Ronny Gal, an analyst at Sanford C. Bernstein & Co. Related Coverage
The deal also would mark the latest twist in one of the most dramatic takeover battles in recent years—a fracas that has ignited debate over the role and cost of research and development at large drug makers.
Valeant and activist investor William Ackman since April have been seeking to seal a deal with Allergan, an unusual alliance that teamed a corporate suitor with an activist hedge fund. Mr. Ackman’s Pershing Square Capital Management LP built a nearly 10% stake in Allergan before Valeant made its bid.
Allergan declined to enter negotiations with Valeant, calling the cash-and-stock offer too low and too risky. Allergan has derided Valeant as a corporate raider that grew by buying profitable companies and slashing costs, especially for the research that Allergan says is crucial for growth.
Valeant has pushed back against that portrayal, saying it chooses not to fritter away money on fruitless research and has delivered growth through strong management and cost controls.
Valeant’s most recent bid was valued at $53 billion, though Valeant has said it was willing to boost its offer.
Valeant and Pershing Square will wait to see the exact terms of any Actavis deal and how the stock market reacts before deciding how to respond, people familiar with the hostile suitors said.
Valeant, which has said it wants to triple its size through acquisitions, could turn to animal-health company Zoetis Inc. as a Plan B, people familiar with the matter have said. That also would unite the company with Mr. Ackman, who recently teamed with another hedge fund to take a 10% stake in Zoetis.
Other potential combinations have also sprung up around Allergan and Actavis this year, creating a complex web in which some companies have shifted roles between predator and prey.
This summer, for example, Allergan held talks to buy Salix Pharmaceuticals Ltd. Such a deal would have made Allergan bigger and more complicated for Valeant to buy, but those talks ended.
And while Actavis explored a deal for Allergan, Pfizer Inc. for a time pursued a takeover of Actavis, a person familiar with the matter has said. Actavis rejected such a deal, the person said.
Actavis has been hungry, earlier this year buying Forest Laboratories Inc. for $25 billion.
A deal between Actavis and Allergan likely would be the largest in a robust year for corporate matchmaking. Other blockbuster deals in the works this year—such as Pfizer’s attempted $120 billion takeover of AstraZeneca PLC and AbbVie Inc. ’s $54 billion proposed acquisition of Shire PLC—have collapsed.
There had been $367 billion in health-care deals this year through last Monday, the most on record for that period since at least 1995, according to Dealogic.
—David Benoit contributed to this article.
Write to Jonathan D. Rockoff at Jonathan.Rockoff@wsj.com, Dana Mattioli at dana.mattioli@wsj.com and Liz Hoffman at liz.hoffman@wsj.com
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