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The Globe and Mail

Valeant, Ackman in $45-billion bid for Botox-maker Allergan

Valeant Pharmaceutical’s offices in Montreal.

Ryan Remiorz/The Canadian Press

Corporate raider Bill Ackman is teaming up with Canadian-based drug giant Valeant Pharmaceuticals International Inc. in a $45.6-billion bid for California eye and skin care company Allergan Inc.

Mr. Ackman, best known as a hedge fund operator who has pressed for changes at companies such as Canadian Pacific, Herbalife and J.C. Penney, is this time participating in an expensive takeover proposal.

Mr. Ackman's Pershing Square Capital Management LP has already picked up 9.7 per cent of Allergan stock, worth more than $4-billion, through a new entity call PS Fund 1 created with Valeant for this particular purpose, according to a securities filing. Pershing Square began its stock purchases in February.

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Pershing Square and Valeant are offering Allergan's shareholders a combination of cash and Valeant shares for their holdings, Valeant said in a separate securities filing. The cash component will be as much as $15-billion (U.S.), Valeant said.

Valeant put some numbers to that today, proposing a takeover valued at $48.30 (U.S.) in cash and 0.83 of a share, adding it believes the deal would result in annual savings of at least $2.7-billion.

"This proposal represents an undeniable opportunity to create extraordinary value for both Allergan and Valeant shareholders by establishing an unrivaled platform with leading positions in ophthalmology, dermatology, aesthetics, dental and the emerging markets" said Valeant chief executive officer Michael Pearson.

For his part, Mr. Ackman said in a statement that a merger of the two would mark "the most strategic and value-creating transaction I have ever analyzed."

Valeant said it has already lined up financing for the deal. Barclays and Royal Bank of Canada "have indicated they are prepared to deliver financing commitments covering the cash portion of the transaction at the time Valeant makes an offer," it said in its filing.

According to people familiar with the discussions, Ackman approached Valeant earlier this year with a proposal to team up for a hostile play against one of the most protected publicly traded companies in the United States.

Mr. Ackman is apparently moving from the activist arena into a takeover play for the first time, as part of an attempt to surmount Allergan's formidable defences that protect it from unwanted acquisitions or activist proposals.

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Under the company's current bylaws, sources said, it is difficult for shareholders to requisition a special meeting with less than a quarter of the company's stock. In Canada, by comparison, a 5 per cent stake is typically sufficient. Allergan has also cocooned itself with shareholder voting restrictions.

But Allergan's biggest defence is its stock price. At Monday's close of $142 a share, the company has a market capitalization of more than $40-billion. An Allergan spokeswoman declined comment on the Valeant/Pershing Square proposal.

Pershing Square's bet in acquiring a 9.7 per cent stake in Allergan is the largest single investment in the hedge fund's history.

Under its deal with Valeant, Pershing Square can back out of its deal and wind up PS Fund 1 if the Canadian drug company does not make a formal takeover proposal to Allergan by May 2.

It is understood that Valeant's Mr. Pearson and his advisers met with Mr. Ackman and his team in New York this past weekend to negotiate the final terms of their joint takeover agreement. Mr. Ackman and Valeant signed the joint agreement in February to negotiate terms of a potential bid.

Valeant, which has made multiple acquisitions -- large and small -- over the past several years, has seen it stock price double in the past year. Its stock jumped more than 9 per cent in after hours trading Monday.

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In January, Mr. Pearson said Valeant would strive to be one of the top five pharmaceutical companies in the world by the end of 2016. That would require a tripling in size to around $150-billion (U.S.) in market cap.

Its most recent major purchase was eye care company Bausch & Lomb, for which it paid close to $9-billion in 2013.

Allergan, which sells skin treatments as well as drugs for eye conditions and neurological disorders, also saw its stock jump sharply in after hours trading Monday -- it rose by more than 20 per cent.

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