(Adds analyst comments, details from filing, paragraphs 6-8,
By Svea Herbst-Bayliss, Rod Nickel and Olivia Oran
BOSTON/NEW YORK, April 21 Activist investor
William Ackman has acquired a nearly 10 percent stake in
wrinkle-treatment maker Allergan Inc and is working with
Valeant Pharmaceuticals International Inc to buy the
company, sources said on Monday.
Ackman's Pershing Square, a $13 billion hedge fund, spent
roughly $4 billion on acquiring the stake, its biggest-ever
investment which comes less than a year after the hedge fund
took a stake in Air Products & Chemicals.
Pershing Square began buying stakes in Allergan in February,
according to a regulatory filing, with money it had freed up by
trimming its stake in Beam and getting out of General
Growth Properties, one of its biggest winners ever.
Valeant, a Canadian pharmaceutical company known for skin
care products and generic drugs, has been on a buying spree and
most recently acquired Bausch & Lomb Holdings.
It has been eager to make a bid for Irvine, California-based
Allergan for over a year but has been turned away, a source
familiar with the matter said.
In the regulatory filing, Ackman said Valeant will pay with
a combination of stock and cash and expects the cash component
to total around $15 billion. Barclays and Royal Bank of Canada
have said they are ready to help with financing.
A Valeant spokesperson said that a merger with Allergan
would create an "unrivaled platform for growth and value
creation," and said that the company would soon finalize its
proposal and then announce it.
The potential deal also seems to be finding favor with
analysts. "The deal also looks attractive because of a "massive
amount" of potential operating synergies from the two companies'
overlap and Valeant's lower tax rate in Canada, Morningstar
analyst David Krempa said.
A spokeswoman for Pershing Square declined to comment.
Traditionally, activist investors like Ackman take a stake
in a company and then wait for a catalyst like a takeover to
push the share price higher. In this case, Pershing Square is
working together with Valeant as a group, according to a
regulatory filing, so that Valeant can then push ahead on a
Hedge fund ValueAct, also known for pursuing activist
strategies, sits on the Valeant board but has historically shied
away from getting involved in hostile takeovers.
Pershing Square does not shy away from controversy, having
waged a very public battle against nutrition and weight loss
company Herbalife with a $1 billion short bet unveiled
in December 2012. This year, Pershing Square is delivering some
of the hedge fund industry's best returns with a gain of roughly
10 percent through the middle of April, a Pershing Square
investor said, while the broader Standard & Poor's 500 index is
If the companies were to unite, the deal would bring
together two mid-sized pharmaceutical companies with expertise
in skin care and eye care products.
Allergan, which also has a lucrative portfolio of ophthalmic
drugs to treat conditions such as glaucoma and dry eye, reported
$6.3 billion in revenue last year and forecast 2014 revenue of
$6.65 billion to $6.95 billion.
Valeant, reported $5.8 billion in revenue last year.
There may be some push back from Allergan's board however,
Morningstar analyst Michael Waterhouse said, noting that
Valeant's reputation of slashing research and development might
make some uneasy.
Also Waterhouse said one big downside of a takeover, might
be the loss of Allergan's longtime CEO David Pyott, an avid
dealmaker who built Botox into a blockbuster by continuously
testing it for new uses.
Investors liked the news and sent shares up on Monday, with
Allergan rising 6 percent to close at $142 per share. Valeant
climbed 3.24 percent to close trading at $126.01.
But one Valeant shareholder thought the deal might be too
pricey. Allergan shares closed on Monday up 28 percent so far in
2014, trading at all-time highs.
"It's almost impossible to turn it into a high return
investment if you pay that kind of price," said Glenn Greenberg,
managing director of Brave Warrior Advisors, a Valeant
(Additional reporting by Bill Berkrot, Ransdell Pierson;
Editing by David Gregorio and Jonathan Oatis)