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Valeant Pharmaceutical’s offices in Montreal.Ryan Remiorz/The Canadian Press

Mike Pearson, chairman and chief executive of Valeant Pharmaceuticals Inc., has a dream: Transform his company into a top five global pharmaceutical firm through internal growth and acquisitions.

His $46-billion offer for Allergan Inc. will bring the dream closer to reality, if it succeeds. But it comes with a potential downside – Valeant will be well on its way to becoming the top-weighted stock on the S&P/TSX composite index.

Okay, that might not sound like a downside. Within the S&P 500, there is a certain prestige that comes with being on top, where Apple Inc. currently reigns as the world's largest company based on market capitalization.

The top of the S&P 500 brings ultra-blue chip status, as former number ones Exxon Mobil Corp., General Electric Co. and International Business Machines Corp. demonstrate.

But the Canadian experience is far different, as we pointed out earlier this year. Here, the market doesn't take kindly to companies that push aside the benchmark index's long-standing top dog, Royal Bank of Canada. Nortel Networks Corp. has done it. So have Potash Corp. of Saskatchewan Inc., Barrick Gold Corp., BlackBerry Ltd. (formerly Research In Motion Ltd.), and Manulife Financial Corp.

In all five cases, reaching the top didn't bring blue-chip glory. Nortel was wiped out, Potash Corp. has declined 45 per cent, BlackBerry has fallen 94 per cent, Barrick has fallen 50 per cent and Manulife has fallen 29 per cent.

Should Valeant shareholders be worried?

If the offer to acquire Allergan goes through – Allergan is reportedly seeking bids from Johnson & Johnson and Sanofi, as well as adopting a so-called poison pill defense – the Montreal-based pharmaceutical firm will be well on its way to the top of the benchmark index.

Hedge fund manager Bill Ackman, who is Allergan's largest shareholder and a key supporter for a deal with Valeant, believes the combined companies could be worth about $200 a share, which implies a market capitalization of more than $60-billion.

That still leaves a big gap with Royal Bank, but Mr. Ackman and Mr. Pearson see the Allergan deal as a springboard for more acquisitions ahead.

Indeed, Mr. Pearson's goal of making Valeant into a top five pharmaceutical firm by 2016 would entail increasing the market cap to about $150-billion, which is most definitely larger than Royal Bank's $105-billion market cap.

If Valeant succeeds, at least it has one key characteristic that distinguishes it from other companies that have taken a run to the top of the TSX: Its market cap is growing through acquisitions – and sales and earnings – rather than investor infatuation.

When Barrick reached the top of the index in 2009, gold was seen as the only safe investment and Royal Bank shares had fallen to six-year lows during the financial crisis.

In the case of Potash, investors scrambled into the stock in 2008 under the belief that the world simply couldn't get enough fertilizer.

For BlackBerry, its brief stint at the top came before investors realized the competitive threat posed by the new iPhone.

Whatever happens with Valeant, at least shareholders can take comfort in the fact that while being at the top of the TSX tends to bring pain, getting there is all pleasure.

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