Canada's Valeant Pharmaceuticals International Inc said on Tuesday it and activist investor Bill Ackman made an unsolicited $47 billion bid to buy Botox maker Allergan Inc as it seeks to become one of the world's five biggest drug companies.
The offer, if successful, would bring together two mid-sized pharmaceutical companies with expertise in skin care and eye care products, and is highly unusual as activist investors typically buy stakes and then agitate for strategic change.
Ackman's Pershing Square Capital Management, Allergan's largest shareholder with a 9.7% stake, disclosed in a filing on Monday it is supporting the bid.
Allergan said in a statement that it has received the offer, and will carefully consider the proposal and "pursue the course of action that it believes is in the best interests of the company's stockholders."
Late on Tuesday, Allergan said it adopted a shareholder rights plan effective April 22 that will trigger if a person or group acquires 10% or more of its shares.
Valeant offered to pay $48.30 a share in cash and 0.83 of its common share for each Allergan share, valuing Allergan at $152.88 a share, a premium of over 7% to the company's closing price on Monday.
The offer is 31% higher than Allergan's stock price on April 10, the day before Pershing Square's ownership reached 5%.
Shares of Allergan jumped 15.2% to $163.65 in New York, signaling investors expect a sweetened bid to emerge.
Valeant stock rose 7.5% to $135.41.
Valeant has been on a buying spree since 2010 and last year acquired contact lens maker Bausch & Lomb Holdings.
Chief Executive Michael Pearson said in January the drugmaker wants to become one of the world's top five pharmaceutical companies by market capitalization by the end of 2016, largely through acquisitions.
"The big valuation driver is Botox," Pearson said, speaking about the Allergan bid to about 200 shareholders and analysts in New York.
Pearson said Allergan Chief Executive David Pyott and the company's board had been unwilling to discuss a merger with Valeant. In a letter to Allergan, Valeant said it would have preferred to negotiate a deal in private.
Pearson said Valeant would definitely not turn its bid into an all-cash offer, and suggested the company could still walk away if Allergan's price gets too high.
"We don't view this as we're going to pay whatever it takes to get Allergan, because we won't," he said. "If someone wants to come in and pay some ridiculous cash price, that's their choice."
Ackman, who also addressed shareholders, called the deal the most synergistic he has seen, and said he is already talking with Valeant about their next deal.
The Laval, Quebec-based company, whose products include antidepressant drug Wellbutrin and over-the-counter remedy Cold-FX, favors targets where it can aggressively cut costs.
Valeant said it expects to realize at least $2.7 billion in annual cost synergies from a combination with Allergan.
A large-scale cost-cutting approach may not work at Allergan without damaging the business, BMO Capital Markets analyst David Maris said in a note.
But J.P.Morgan analyst Chris Schott said the potential for savings from operating expenses and Valeant's low tax rate is compelling.
Allergan, which also has a lucrative portfolio of ophthalmic drugs to treat conditions such as glaucoma and dry eye, is larger by revenue, reporting $6.3 billion in sales last year.
Valeant reported $5.8 billion in revenue last year.
Pearson said he doesn't expect the offer to raise antitrust concerns.
The Federal Trade Commission, which shares the work of antitrust enforcement with the U.S. Justice Department, will likely review this proposed transaction, according to an antitrust attorney, who declined to be named for business reasons.
"It's like any of these big drug deals, if there's overlap in certain products then, like prior deals in this space, they can divest one of the products to get the deal through," the antitrust expert said.
Valeant is already in talks with potential buyers of products the new company would divest, Pearson said, naming Valeant's Botox competitor, Dysport, as well as its Restylane and Perlane product lines. Combined sales of those lines could reach about $250 million, Schott said.