Botox Maker Stony-Faced to Valeant's $47 Billion Offer

Allergan Inc. (Irvine, CA), maker of the popular Botox cosmetic treatment as well as a number of medical devices, has announced that its board of directors has unanimously rejected the unsolicited $47 billion offer presented last month by Valeant Pharmaceuticals International Inc. and and William A. Ackman, manager of the hedge fund Pershing Square Capital Management.

Writing for the New York Times' Dealbook blog, David Gelles said, "The unusual hostile approach was notable for many reasons, not in the least because it was the first such collaboration between an activist and a strategic acquirer. But it also set up a takeover drama that is just beginning to play out."

In a conference call transcribed by Seeking Alpha, Allergan chairman and CEO David E.I. Pyott told investors and analysts, "Valeant's proposal substantially undervalues Allergan's leading market positions, sales and marketing foundation, industry leading research and development efforts as well as future revenue and earnings growth. The board is confident that our plan will create significantly more value than Valeant's proposal."

Pyott continued, "The board also has concerns regarding the sustainability of the Valeant business model and therefore the value inherent in its stock. Furthermore it is the board's belief that the Allergan management team is best equipped to deliver this value and our track record speaks for itself."

Pyott referenced the "very low rates of organic growth which are clearly depicted in Valeant's earnings presentations. If we take the same-store organic growth for 2013 it was zero. In this last quarter it was plus one."

"(O)ur model works, whereas Valeant's model of cutting and slashing really doesn't work for more than a very short period of time and that shows up that in the same-store low growth that they produce," Pyott explained. As a case in point, he said, "in the last quarter of 2013 the ophthalmic Bausch + Lomb Valeant business grew 3 percent, whereas Allergan grew 13 percent."

Regarding the risk to shareholders who would wind up owning more than 40 percent of Valeant, Pyott said Valeant's plan for billions of dollars in cost cuts would prevent Allergan from delivering growth that it could produce on its own. And to emphasize the point, he set a target of a 20 to 25 percent increase in earnings per share in 2015.

According to the Times' Gelles, Valeant said it would continue to pursue a deal.

"We are disappointed that Allergan has rejected our value-creating offer without engaging in any substantive discussions with Valeant or Allergan's largest stockholder, Pershing Square, and we remain committed to pursuing this transaction," said Valeant's head of investor relations, Laurie Little.

Stephen Levy is a contributor to Qmed and MPMN.