Skip to main content


Valeant Pharmaceuticals Inc. has set in motion what promises to be a heated multibillion-dollar takeover battle for U.S.-based Cephalon Inc.

Valeant, which merged with Canadian drug maker Biovail Corp. last June, said late Tuesday it offered to buy the U.S. biopharmaceutical company for $5.7-billion (U.S.) but was rebuffed by its board and management. Unable to strike a friendly deal, Valeant took its $73-a-share proposal public, and said it would launch a campaign to oust Cephalon's board and replace the directors with its own nominees.

Valeant's drugs cater to dermatology and neurology, while Cephalon predominately offers pain, oncology and central nervous system drugs - products that Valeant believes would make for a strong combined company. But Cephalon rejected the friendly offer because it believed the value was much too low.

By launching the hostile bid, Valeant has put the deal in the hands of shareholders, instead of letting Cephalon's board decide whether or not the bid is undervalued. And if it is, another bidder could very well appear as hostile takeovers in the bio tech world pick up pace. In 2010, Genzyme Corp. was taken over in a $20.3-billion hostile bid from Sanofi-Aventis after several unsuccessful efforts to block the deal.

Valeant's bid comes less than a year after it closed its $3.2-billion (Canadian) friendly merger with Biovail Corp. That deal closed without any hiccups and Valeant has snapped up a few smaller companies since.

Valeant tried to go the same friendly route with its Cephalon bid, but was rejected by the target's management team.

On Tuesday, Biovail released e-mails sent by chief executive officer Michael Pearson to Cephalon's board and CEO that revealed the two leaders met early in March, and a friendly offer was put forward a few weeks later. Cephalon rejected that bid, claiming it was too low to warrant any discussions with Valeant, prompting the buyer to come back to the table with another alternative. That bid included an alternative scenario in which Valeant would only pay $2.8-billion (U.S.) and allow Cephalon to operate its oncology-focused division as a standalone company.

However, Valeant wasn't pleased that Cephalon's board wanted to wait two weeks to discuss the that bid. Cephalon has also announced two small deals in the past few weeks that have depleted its cash reserves by $400-million.

"We do not feel comfortable extending the time for you to respond formally to our proposal," Mr. Pearson wrote in a letter to Cephalon on Tuesday. He then cited the recent spending, adding that it "makes Cephalon a less attractive acquisition from our standpoint."

Mr. Pearson also noted that Provigil, one of Cephalon's best-selling drugs, "continues to move closer to its patent cliff and your cash is being rapidly spent on what we believe are risky investments."