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Valeant could sweeten bid for Botox-maker Allergan

Acquisition-hungry drug maker Valeant Pharmaceuticals has Allergan in its sights.


Valeant Pharmaceutical International Inc.'s $48-billion (U.S.) hostile bid for Allergan Inc., which has stalled while the target company looks for a white knight, may have to be goosed up to get the deal done.

That's the view of many analysts watching the manoeuvres and they add that Montreal-based Valeant can afford to boost its offer to get a reluctant Allergan on side.

Valeant unveiled its cash and share offer for the California biotech firm, best known for its Botox product line, a week ago. Valeant is making the bid with the assistance of hedge fund manager Bill Ackman, who has accumulated almost 10 per cent of Allergan shares.

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Allergan has said little, except that it will carefully review the proposal. It has put in a place a "poison pill" defence to give it time to look for alternatives.

Bloomberg reported Tuesday that Allergan has contacted a number of companies, including French health-care giant Sanofi SA and American pharmaceutical and packaged goods powerhouse Johnson & Johnson, to see if they are interested in a combination.

And reports out of Europe have suggested Allergan might make its own takeover offer for Irish-based drug maker Shire PLC, creating a low-tax giant that would be too big for Valeant to swallow.

Despite all those possible scenarios Valeant's eventual takeover of Allergan – but at a somewhat higher price – is still seen as the most likely outcome by many of the analysts who cover the two companies.

After an analysts' meeting with Valeant management last Friday, Canaccord Genuity's Neil Maruoka said that "there appears to be a willingness on [Valeant] CEO Mike Pearson's part to provide a higher cash component" in its offer. He concluded that "a higher premium may be required for Valeant to close this transaction."

Sterne Agee's Shibani Malhotra said bluntly that "we expect [Valeant] to increase its bid," and noted that the company has indicated to him that it is "both willing and able" to do so.

Paradigm Capital Inc.'s Alan Ridgeway said he thinks that if there is a competing bid, Valeant could come up with $20 a share more – on top of the current cash and share offer of about $159 per share – and still generate a substantial boost to the combined company's bottom line in the first year through cost savings.

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Those potential savings – Valeant pegs them as high as $2.7-billion in the first year – have become a major point of contention between the two companies.

In their initial presentation about the proposed merger last Tuesday, both Mr. Pearson and Mr. Ackman claimed that Allergan is a bloated company, with a high level of expenses and far to much spending on research and development.

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