Valeant Pharmaceuticals International Inc. is preparing to put its $54-billion (U.S.) takeover bid for Allergan Inc. directly to the Botox maker's shareholders, while activist investor Bill Ackman seeks to turf out a majority of the target company's board.
The moves, announced Monday, ramp up the pressure on Irvine, Calif.-based Allergan, which has spurned Valeant's proposal, heavily criticized its business model and questioned the longer-term value of its stock.
Mr. Ackman's Pershing Square Capital Management LP is Allergan's largest shareholder with 9.7 per cent of the stock and Laval, Que.-based Valeant's partner in the takeover attempt.
Mr. Ackman said on a conference call with Valeant chief executive officer Michael Pearson that he has called for a special meeting of Allergan shareholders at which Pershing Square would seek to replace at least six of the nine directors.
The special meeting could take place as early as Aug. 7, but Allergan has the power to delay the meeting into late November, he said.
That would give Allergan plenty of time to find alternatives to the Valeant offer, such as finding other partners, doing a share buyback or opting for a dividend increase. Allergan could also seek to negotiate improved terms with Valeant.
Allergan urged its shareholders not to take action until they get a recommendation from the board.
Pershing Square is abandoning plans for a non-binding Allergan shareholders' referendum as a pressure tactic.
"Overwhelming shareholder support for the transaction removes the need for a referendum," Pershing Square said.
"Rather than seeking to delay the inevitable, Allergan's board should negotiate with Valeant immediately."
Mr. Pearson said Valeant is preparing to file within two to three weeks a so-called "exchange offer" with the U.S. securities regulator to put its bid directly before Allergan shareholders.
Valeant sweetened its bid a second time on Friday, to $72 in cash and 0.83 of a Valeant share for each Allergan share.
Allergan shareholders would also get to share in the proceeds of the company's in-development eye drug if sales targets are attained.
On Monday, Pershing Square said it consulted with six of Allergan's top 10 shareholders and they "believe that the proposed merger is highly strategic and creates enormous shareholder value."
It also said Allergan shareholders "are extremely disappointed with how Allergan has handled the process and how they have attacked Valeant's business."
So far, Allergan's board has refused to sit down with Valeant to discuss the offer, saying a merger with Valeant would be too risky, result in the slashing of R&D, and cripple Allergan's sales and marketing force. Allergan has also criticized Valeant's business model of growth by acquisition.
On Monday, Valeant said it is ready to sit down with Allergan "at any time" and that a merger agreement "could be signed within one week."
BMO Nesbitt Burns analyst Alex Arfaei said in a research note that Valeant's higher offer "significantly increases the probability of negotiations, possibly because of increased [Allergan] shareholder support.
"The 55-per-cent premium offered, relative to the undisturbed price, will likely increase if the companies start negotiating as [Valeant] shares will likely rise, increasing the possibility of a deal."
Pershing Square said major Allergan shareholders told it that they can't share their concerns over how the company is handling the Valeant proposal because management is not willing to listen.