Botox maker Allergan Inc on Monday accepted a $66 billion takeover bid from Actavis Plc, ending a seven-month hostile pursuit by activist investor William Ackman and Valeant Pharmaceuticals International Inc.
Dublin-based Actavis offered $219 per share in cash and stock, amounting to billions more than Canada's Valeant was prepared to pay. Valeant said it would walk away from its Allergan campaign shortly after the deal was announced. Ackman was not available for comment.
The deal marks a surprise win for Allergan, which had fought the Valeant-Pershing alliance in court and among shareholders in one of the healthcare sector's most complex takeover efforts.
Allergan shares rose 5.3 percent to close at $209.20. Actavis gained 1.7 percent to $247.94.
Allergan had argued that the Valeant cash-and-stock offer, most recently worth about $54 billion, would hurt its shareholders, given the Canadian drugmaker's history of cutting research and development spending at companies it acquires.
Besides the higher price tag, the Actavis deal came with only $400 million in R&D cuts for Allergan, far less than the $900 million decrease that Valeant had proposed, the companies said on a conference call with investors.
Actavis’ approach may help the two companies integrate their operations and ensure some of Allergan's promising experimental eye treatments for macular degeneration and glaucoma remain in the pipeline.
"If these bets turn out well, Actavis will be seen as a better call," said Morningstar analyst Michael Waterhouse.
Ackman in late April disclosed a nearly 10 percent stake in Allergan and plans to bid for the company together with Valeant. Despite losing his takeover target, Ackman's Pershing Square will earn at least $2.3 billion from Allergan's buyout by Actavis.
The $18 billion hedge fund has roughly 30 percent of its capital invested in Allergan, whose share price has nearly doubled from the $126.54 it paid earlier this year.
Valeant, meanwhile, may find new acquisition targets more willing to push back on its overtures, some of its investors said.
Actavis Chief Executive Officer Brent Saunders said in an interview that he had reached out to Allergan CEO David Pyott many times during the Valeant-Ackman campaign to express his interest in a combination.
"As he was in discussions, or the throes of battle, with Valeant and Pershing Square, we would connect from time to time," Saunders said, "and I would let him know that we were a friend and we thought it made sense - from 10,000 feet - to combine the businesses."
But talks with Actavis did not begin in earnest until a few weeks ago. Until then, Pyott had publicly fought to keep his company independent and told investors that Allergan was working on acquisitions that would pay off.
Sources familiar with the matter told Reuters that they included discussions about a more than $10 billion deal for Salix Pharmaceuticals that did not materialize.
Allergan also sued Valeant and Ackman, saying that when the hedge fund teamed up with the drugmaker before it made the joint April offer, it broke insider trading rules.
Ackman and Valeant fought back with a proxy battle, seeking to replace Allergan board members and initiating a special shareholder meeting for Dec. 18 to compel the company to negotiate.
Under the buyout deal, Actavis will lead a combined company with $23 billion in revenue from Allergan's ophthalmology, neurosciences, and dermatology business and Actavis' gastroenterology and women's health franchises. In the last two years, Actavis has purchased Forest Laboratories, which Saunders ran, and Warner Chilcott, which enabled it to move headquarters to Dublin.
Actavis said it expected $1.8 billion in savings, on top of the $475 million in cuts that Allergan has already made this year. Valeant planned on savings of about $2.7 billion.
The new company will operate from both California, where Allergan is based, and New Jersey. Its tax rate will be 15 percent compared with Allergan's current rate of about 26 percent.
Actavis was advised by JPMorgan and law firm Cleary Gottlieb Steen & Hamilton. JPMorgan, Mizuho Bank and Wells Fargo provided the deal financing.
Allergan was advised by Goldman Sachs & Co and BofA Merrill Lynch as well as law firms Latham & Watkins, Richards, Layton & Finger and Wachtell Lipton Rosen & Katz.
(Reporting by Caroline Humer; Additional reporting by Rod Nickel in Winnipeg, Manitoba and Ransdell Pierson in New York; Editing by Bernadette Baum and Lisa Von Ahn)