Canada's Valeant Pharmaceuticals International Inc (VRX.TO) (VRX.N) raised the cash component of its unsolicited offer for Botox maker Allergan Inc (AGN.N) on Wednesday, but the increased bid fell short of expectations and both stocks dropped.
Valeant's sweetened offer values Allergan at about $49.9 billion, based on 303.5 million shares outstanding. It also includes the possibility of additional payments worth up to $7.6 billion related to the future sales of an experimental eye drug.
"I was actually surprised (Valeant) didn't go higher," said David Amsellem, analyst at Piper Jaffray. "Clearly they are going to continue to be aggressive, making a full-court press to get this done."
Valeant's New York-listed shares dropped 1.7 percent in midafternoon to $127.61, while Allergan stock lost 4.5 percent to $157.67.
Valeant raised its cash component to $58.30 per Allergan share, compared with its previous offer of $48.30. The stock component remains at 0.83 of a Valeant share for each Allergan share.
The new offer valued Allergan at $164.22 per share as of midday Wednesday, about 7 percent higher than the previous bid of $153 as of April 22, when Valeant first made its offer.
Valeant made the initial offer, worth $47 billion, together with activist investor Bill Ackman. Allergan spurned their advance, saying the Canadian company had overstated possible savings. Allergan is best known for its lucrative Botox medicine, which is injected into muscles to smooth wrinkles and used to treat various other ailments.
Valeant's offer on Wednesday was lower than the $180-$200 per share that investors were looking for, according to an investor survey last week.
It includes a so-called contingent value right, or a right to receive additional benefit, worth up to $25 per share. The possible payments would reflect sales of Darpin, Allergan's experimental eye drug, a potential competitor to Regeneron Pharmaceuticals Inc's (REGN.O) successful Eylea, used to treat the leading cause of blindness in the elderly.
"Allergan shareholders want this deal to occur, but they want a higher price and the optionality on Darpin," Valeant Chief Executive Michael Pearson said in a meeting in New York with several hundred shareholders. "We think the offer we made this morning addresses both of those concerns."
Allergan said it would review and consider the revised proposal.
Even as news of the revised offer settled in, Pearson fielded questions about the company's next moves.
Valeant expects to win approval shortly from the Securities and Exchange Commission to hold a non-binding vote of Allergan shareholders by early July, Pearson said, a move aimed at pressuring Allergan to negotiate. He also said the company was willing to take its offer directly to Allergan shareholders and force a special meeting. That would require Allergan's board to waive the poison pill it passed to stop Ackman from raising his stake.
"We are open to any and all approaches to try to get this deal consummated," he said. "It would be a real shame if we can’t engage the board and management to get this done sooner rather than later."
The company is open to a split if it becomes too large, Pearson said, adding that Valeant's "objective in life is not just to become large."
Pearson said in January that the company would look to become one of the world's top five pharmaceutical companies by market capitalization by the end of 2016.
Valeant’s 3-1/2-hour meeting with investors was intended to blunt Allergan’s criticisms about its organic revenue growth, management experience and its aggressive approach to acquisitions.
Separately, Valeant said on Wednesday it would sell some of its skincare treatments business, including facial fillers for treating wrinkles, to Nestle SA NESN.VX for $1.4 billion in cash. The move would make it easier for an acquisition of Allergan to win anti-trust approvals, analysts said.
(Reporting by Esha Dey in Bangalore, Rod Nickel in Winnipeg, Manitoba, and Caroline Humer in New York; Editing by Savio D'Souza, Sofina Mirza-Reid and Leslie Adler)