Aesthetics products maker Allergan (NYSE:AGN) last night adopted a "poison pill" strategy designed to insulate the company from a surprise $47 billion hostile takeover.
Allergan leadership said its new stockholder rights plan isn’t designed to prevent a potential acquisition, but only to give the company additional time to consider an unsolicited offer from Valeant Pharmaceuticals (NYSE:VRX, TSE:VRX) and Pershing Square Capital Management hedge fund.
Valeant announced yesterday that it had teamed up with Pershing to offer $48.30 in cash and 0.83 shares of Valeant common stock for each Allergan share, representing a premium of more than 7% over the company’s Monday night closing price. AGN stock soared following the announcement, and shares are up 26% since the start of the week.
Allergan responded less enthusiastically to the news, announcing that the board of directors opted to adopt a 1-year plan to grant 1 preferred share purchase right on each outstanding share of the company’s common stock. Commonly called a "poison pill," the strategy allows stakeholders other than the bidder to buy additional shares at a discounted price, potentially deterring would-be bidders by increasing costs.
Under the terms of Allergan’s plan, the new rights become exercisable if any one person or group acquires 10% or more of the company’s common stock. Pershing this month acquired a 9.7% stake in the company, according to regulatory filings.
Valeant CEO Michael Pearson told reporters today that he was disappointed but undeterred by the poison pill strategy.
"I think this deal will get done," he said during an interview with CNBC.
Valeant said in regulatory filings that the direct-to-shareholder acquisition bid came after a year and a half of failed attempts to negotiate with Allergan leadership.
"Unfortunately, Allergan’s management has not been receptive to our overtures for over 18 months and has made it clear privately and publicly that it is not interested in a deal with us, so we chose to take our proposal to Allergan’s shareholders directly," Valeant said. "We are committed to taking whatever steps are necessary to complete this transaction."
The merger would make the combined companies one of the largest drug firms in the world. Pearson has said he aims to get Valeant in the top 5, and the company has been making big bets on acquisitions. The company earlier this year closed a $250 million buyout of Solta Medical. Valeant last year made an $8.7 billion offer for Bausch & Lomb.
