Losing Allergan deals blow to Valeant reputation

WINNIPEG/NEW YORK (Reuters) - The failure of Valeant Pharmaceuticals International Inc to buy Allergan Inc leaves it with nothing to show for a seven-month, bruising pursuit.

The head offices of Valeant Pharmaceuticals International Inc. are seen in Laval, Quebec May 20, 2014. REUTERS/Christinne Muschi

Losing Allergan to Actavis PLC also hurts Valeant’s deal-making reputation, said a source close to the company not authorized to speak publicly.

Allergan announced a $66 billion deal with Actavis on Monday that trumped Valeant’s offer.

Valeant has made dozens of buys and is expected to triple revenues over three years by the end of 2014. But Allergan was a public setback for a company aiming to become a top-five pharma company by the end of 2016.

Allergan’s rebuff will embolden future targets to “push back,” said Peter Mann, portfolio manager at Gluskin Sheff + Associates, which owns shares in both Valeant and Allergan.

“Clearly, (Chief Executive) Dave Pyott and his team at Allergan have proven that there are other avenues,” he said.

Valeant CEO Michael Pearson said on Monday that the Laval, Quebec-based company could not justify matching Actavis’ bid.

Losing Allergan hurts Valeant’s reputation for now, but in the long run its business model’s advantages should win out, said Gautam Dhingra, CEO of Valeant shareholder High Pointe Capital Management.

Valeant has taken months of criticism from Allergan about its acquisition-focused model. Valeant shares rose slightly on Monday afternoon.

It is unlikely Valeant will try another hostile transaction, said Glenn Greenberg, managing director of Valeant shareholder Brave Warrior Advisors, because it is “no fun having the company you built impugned and trashed.”

Valeant demonstrated, however, that it can identify good value and showed discipline by not overpaying, he said.

Pearson has said he is active in numerous sets of mergers and acquisition talks at any time. Valeant looks for companies with cash-pay models and opportunities for cost cutting and tax savings.

Valeant’s partner in the Allergan bid, Pershing Square Capital Management, owns a stake in animal health care company Zoetis Inc, offering a possible back-up plan.

Zoetis is attractive, but its stock is highly valued, Morningstar analyst David Krempa wrote last week. Valeant could instead pursue animal health divisions at Merck & Co Inc or Boehringer Ingelheim, he said.

“Valeant probably feels some pressure to show that it can do another deal relatively soon,” Dhingra said.

Reporting by Rod Nickel in Winnipeg, Manitoba; Editing by Richard Chang