After having other offers rejected, Canadian pharmaceutical giant Valeant made moves on Wednesday to bring their hostile takeover offer to buy Allegan directly to that company’s shareholders. Allergan is the company that makes Botox. The offer that Valeant made is a mixture of cash and stock, hoping to entice the shareholders to vote to allow Valeant to acquire enough Allergan stock to own the company.
Allergan has a clause called a “poison pill”, a stipulation that does not allow for any accumulation of more than ten percent of Allergan stock. Valeant’s plan calls for approaching Allergan shareholders and offering what is called a tender offer. Allergan shareholders can sell their stock to Valeant at $72 and .83 shares of Valeant stock. The deal will end on August 15.
A wrinkle to the proceedings is Valeant’s partnership with an investment firm, Pershing Square Capital Management. Pershing Square bought 9.7 percent of Allergan stock. Since the pharmaceutical company Valeant has allied itself with an investing firm, it must take steps so the company is not accused of insider trading. People are not allowed to buy stock in a company if they know another company has presented a tender offer to it. If Pershing Square knew that Valeant was planning a tender offer when they bought their Allergan stock, they would be guilty of insider trading. Valeant and Pershing Square carefully maneuvered around these federal securities laws.
First, in regulatory filings from April, the partnership declared that it had no interest in presenting Allergan a tender offer. At the same time, they also declared themselves to be in a partnership, thus acting as one when it came to offering the tender offer that came later on. This way, Pershing Square could not be accused of acting with prior knowledge, because Valeant and Pershing Square become a bidding group acting together.
Allergan employees are not exactly excited about this development. One major point of contention relates to Allergan’s pharmaceutical research division. Valeant has made it clear that they are not interested in research, and many of Allergan’s employees see themselves as researchers. Even with the apprehension at their upcoming acquisition, Allergan is pleased with the way that their employees have been keeping their heads about them and continuing to serve their doctors and patients.
Valeant’s modus operandi is to buy pharmaceutical companies that have already profitable products, rather then develop their own products. Valeant’s executive appear to believes that pharmaceutical research and development is fraught with over spending, and rarely gets results. Other concerns over the hostile takeover of Allergan come from the town that Allergan is located in. Officials in Irvine, California, are worried about the economic effects that will come from Allergan employees relocating after losing their jobs.
As Canadian pharmaceutical giant Valeant prepares its moves to buy Botox maker, Allergan, it is faced with multiple obstacles. While it may have been able to avoid insider trading accusations, it still must deal with employees that are unhappy with the idea of being acquired by a company that does not want to do research. The deal expires on August 15.
By Bryan Levy