Allergan Inc. has put in place a poison pill to block the almost-$50-billion (U.S.) hostile takeover bid from Montreal-based Valeant Pharmaceuticals International Inc., but the options for its next move are limited.
Late Tuesday, Allergan said it was instituting a "stockholder rights plan" that would create a large number of new shares if any shareholder accumulates more than 10 per cent of the company's outstanding equity.
It's aimed directly at the cash and stock bid made by Valeant and its partner, hedge fund manager Bill Ackman, whose Pershing Square Capital Management LP now owns 9.7 per cent of Allergan shares.
Allergan said the poison pill is not intended to prevent an acquisition of the company, but to give the board enough time to assess a proposal.
Valeant chief executive officer Michael Pearson said in a television interview Wednesday that he was disappointed at Allergan's move, but still thinks the deal will get done. A Valeant spokeswoman said the poison pill "won't preclude constructive engagement in the near term," and the company is "pleased that Allergan has acknowledged its interest in hearing from shareholders and has empowered its lead director for that purpose."
Analysts were busy Wednesday speculating on what steps Allergan could take if it decides not to accept the Valeant offer.
A "white knight" who rides to the rescue with a better bid is always a possibility, although it would have to have very deep pockets, particularly if it wants to do an all-cash deal.
There are only a few global companies that could come up with $50-billion. The names floated by analysts include GlaxoSmithKline Inc., Sanofi SA, Novartis International AG, Nestle SA and Johnson & Johnson.
"These assets are fantastic, but that is a very small audience," said Alan Ridgeway, an analyst at Paradigm Capital Inc. in Toronto.
Mr. Ackman himself said Allergan's board has a duty to try to find a better offer, although he thinks no one could beat the benefits offered by the Valeant deal, which promises to cut costs by $2.7-billion in the first year – partly by stripping Allergan of a substantial portion of its research and development spending.
However, Allergan might offer another way to boost shareholder value – by setting up a "tax inversion," which would involve the company buying a firm outside of the United States, and then moving the company headquarters to a low-tax jurisdiction such as Ireland. That's the strategy that Endo Health Solutions Inc. used in buying Canadian drug distributor Paladin Labs Inc., a move that thrilled shareholders because the merged entity, based in Ireland, will pay far less tax.
Allergan could also just try to squeeze a bit more out of Valeant, in the form of a higher offer.
But "I don't think anybody should be expecting a very large increase in the bid," Mr. Ridgeway said. "That's not Valeant's style."
He noted that Allergan says the poison pill is not designed to block a deal but to buy time. "I believe that," Mr. Ridgeway said, but because of the dramatic stock runup since the Valeant bid was announced, Allergan has to find another bidder fairly quickly or accept the offer. Otherwise, its shares will plunge back to where they were before the offer was made.
Still, he said, the combination of Valeant and Allergan could be a powerhouse. "If Valeant can get this deal done at a reasonable price. … the combination is clearly beneficial for its shareholders. Whether the Allergan shareholders choose to believe that is the uncertainty in the market right now."