UPDATE 4-Valeant, Pershing prepare to go hostile in Allergan bid

Mon Jun 2, 2014 2:20pm EDT

(Recasts, updates share movement)
    By Rod Nickel and Ransdell Pierson
    June 2 (Reuters) - Valeant Pharmaceuticals Inc on Monday prepared to take its $53.8
billion takeover bid for Allergan Inc directly to the Botox maker's shareholders in a
battle that could last late into the year.
    The fight escalated when Valeant ally Pershing Square, a hedge fund that owns 9.7 percent of
Allergan, called for a meeting to replace the company's board.
    Pershing Square Chief Executive Officer Bill Ackman, in a conference call with Valeant CEO
Mike Pearson, told investors he had requested a special meeting that could take place as early
as Aug. 7. Allergan could also delay the meeting, where Pershing intends to replace a majority
or more of the company's directors, to as late as November, Ackman said.
    Pearson said Valeant expected in two to three weeks to file an exchange offer, a means of
taking the bid to Allergan shareholders, with the U.S. Securities and Exchange Commission. He
also urged Allergan to negotiate with Valeant.
    "We will be patient," Pearson said. "We will get this deal done."
    Allergan, whose Botox medicine is injected into muscles to smooth wrinkles, said it would
consider Valeant's latest offer. Laval, Quebec-based Valeant said on Friday that it would pay
$72 in cash and 0.83 share of its stock for each Allergan share, increasing its offer for the
second time last week. 
    Valeant is also offering possible additional payments related to future sales of an
experimental eye drug that Allergan owns.    
   
    In a statement, Allergan urged shareholders not to act on the bid until its board makes a
recommendation.
    The drawn-out process to a special meeting would benefit Valeant since an increase in its
share price during that time would boost the value of its offer and make a merger more likely,
said Sterne Agee analyst Shibani Malhotra.
    Malhotra said he doubted Allergan would let the situation escalate to a proxy battle at the
special meeting but was more likely to develop its own plan or negotiate better terms with
Valeant.
    BMO analyst David Maris said Allergan had options such as a share buyback, a dividend
increase or combination with other companies.
    Ackman said he had met last week with six major Allergan shareholders with a combined 19
percent stake, and they said they believed the merger makes sense. He said he was scrapping
plans for a non-binding referendum as a means of pressuring the company to negotiate, based on
shareholder feedback.
    Analysts peg the value of Valeant's bid, prior to Monday's trading, at roughly $180 to $184
per Allergan share. 
    Shares of Allergan were up 2.6 percent at $171.80 in afternoon New York Stock Exchange
trading. Valeant gained 2.2 percent to C$145.50 in Toronto and rose 1.6 percent to $133.36 in
New York.

 (Reporting by Rod Nickel in Winnipeg, Manitoba, and Rans Pierson in New York; Additional
reporting by Euan Rocha in Toronto; Editing by Franklin Paul and Lisa Von Ahn)