Allergan (NYSE:AGN) said its board voted unanimously to reject an unsolicited offer from Valeant Pharmaceuticals (NYSE:VRX, TSE:VRX) and Pershing Capital Management, the hedge fund run by activist investor William Ackman.
In a letter today to Valeant CEO Michael Pearson, Allergan chief David Pyott wrote that the $47 million bid "substantially undervalues Allergan, creates significant risks and uncertainties for the stockholders of Allergan, and is not in the best interests of the company and its stockholders."
Apart from the low-ball valuation, Pyott added, the Valeant/Pershing offer is too stock-heavy.
"In addition to substantially undervaluing our company, your Proposal includes a large stock component, which we believe is a risk for Allergan stockholders due to the uncertainty surrounding Valeant’s long-term growth prospects and business model," Pyott wrote. "Valeant’s strategy runs counter to Allergan’s customer-focused approach. In particular, we question how Valeant would achieve the level of cost cuts it is proposing without harming the long term viability and growth trajectory of our business. For those reasons and others, we do not believe that the Valeant business model is sustainable."
Allergan said it expects to post earnings growth of 20% to 25% and double-digit revenue growth in 2015 and produce "earnings-per-share compounded annual growth of 20% over the next 5 years."
Shortly after Valeant and Pershing made the offer last month, Allergan swallowed a poison pill designed to insulate it from a takeover. Days later major Allergan shareholder Polen Capital Management said the company could do better. Last week Pershing defended the bid, with Ackman urging Allergan’s board to concede to a meeting to explore the offer.
"It is evident based on the market’s response to the Valeant proposal that it is substantially superior to Allergan’s value as a standalone company," Ackman wrote. "We believe it is in the best interest of Allergan shareholders that it begin discussions with Valeant in the very near future."
