The deal surpasses Valeant's previous offer worth nearly US$55 billion based the value of its share Monday morning trading. Valeant (TSX:VRX) (NYSE:VRX) had indicated a willingness to raise its bid above US$200 per share, from US$184, but said it didn't intend to attempt to outbid Actavis at this level.
"While we will review any such agreement in determining our course of action, Valeant cannot justify to its own shareholders paying a price of US$219 or more per share for Allergan," stated Valeant chairman and CEO Michael Pearson, who had spent months attempting to add Allergan to the company's acquisitions.
He said that Valeant, which has its headquarters near Montreal in Laval, Que., will remain focused on its operations and evaluate acquisition opportunities "prudently, in a disciplined manner, and in the best interests of our shareholders."
Under the deal announced Monday morning, shareholders of California-based Allergan will receive US$129.22 in cash and 0.3683 share of Actavis for each of their common shares. Actavis expects to finance the cash portion of the consideration with a combination of new senior unsecured notes, term loans and equity securities.
Allergan has been fighting off a takeover by Valeant, which is working with Pershing Square — a New York-based private equity firm headed by Bill Ackman that is a major shareholder of Allergan.
Shares of Allergan (NYSE:AGN) hit an all-time high Monday, trading up more than seven per cent at about US$213 in morning trading in New York, while Actavis stock traded on the New York Stock Exchange were up about four per cent at just under US$253 while Valeant shares were down three cents at C$151.44 on the Toronto Stock Exchange.
Allergan says the white knight offer from Actavis has been unanimously supported by the directors of both companies.
They say a combined Allergan-Actavis would have more than US$23 billion in annual revenue.
"Today's transaction provides Allergan stockholders with substantial and immediate value, as well as the opportunity to participate in the significant upside potential of the combined company," said David Pyott, Allergan's chairman and CEO.
"We are combining with a partner that is ideally suited to realize the full potential inherent in our franchise."
Pyott had campaigned extensively against the Valeant offer.
Brent Saunders, CEO and President of Actavis, said that the deal will make the combined company one of the world's top 10 pharmaceutical companies.
"We will establish an unrivalled foundation for long-term growth, anchored by leading, world-class blockbuster franchises and a premier late-stage pipeline that will accelerate our commitment to build an exceptional, sustainable portfolio."
Pershing Square said it wouldn't immediately comment.
Even though the investment firm and Valeant appear to have lost out on their efforts to acquire Allergan, Pershing Square will with with the Actavis deal, almost doubling the value of its Allergan holding.
A shell fund started in February by Pershing Square and Valeant spent about US$3.2 billion to acquire a 9.7 per cent stake in Allergan for an average of about US$111 per share. The approximate 29 million shares would be worth US$6.35 billion under the Actavis deal.
David Maris of BMO Capital Markets said the deal will win broad support from Allergan's shareholders.
He said Allergan shareholders had been concerned about Valeant's plans to dramatically cut Allergan research and marketing spending.
"With Actavis, Allergan would continue to have a significant runway for R&D and marketing, as the value driver would not be cost cuts, but, rather, growth of the combined company," he wrote in a report.
He said the deal would allow Actavis to further pivot into branded products, add serious R&D capability and significant organic growth.
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