The real reason for the bid for Allergan?

The sale of the Derma products is a little strange. Why would a company acquire and sell at what appears to be a loss? Also, the second bid for Allergan seems to be not even close to the price that the analysts say is needed to purchase Allergan. So it seems that Valeant is not serious about the purchase.

Perhaps Valeant needed to sell 1.4 billion of the company to cover its short term debts. The purchase of Allergan would have been nice at a low ball price but the play also may give Valeant an excuse for selling part of the company to cover short term debt.

If the purchase of Valeant was not in the mix when the 1.4 billion was sold investors may have asked why was the 1.4 billion needed and what the money is really going to be used for. If the Valeant purchase does not go through look to see if the money goes to pay off short term debt. If it does I am sure a lot of investors will wonder if the business model is starting to unravel and they may get nervous about their investment.

 

Allergan investors are said to be looking for at least 8 percent bid over the current bid. The low ball price at this point is dragging on the process and making it less likely to happen.

Giving Allergan investors the 8 percent increase bid later maybe too late as the true value of Valeant stock is downgraded by persistant Allergan management that is more than happy to point out the flaws of Valeants business model and accounting.

 

You clearly don't understand business dealing and how these types of negotiations work. You also don't understand the DARPin portion and the situation that puts allergan shareholders. Also when you sell something at 5x sales it's not a loss. It's a deal you dont pass up. If you think it's a loss because they pain ore for Medicis you're forgetting to factor in the medial Derm business Valeant is retaining. Hopefully you're not teaching business anywhere.

 

VRX got rid of those products for short term cash squeeze and a reason for not to report on organic growth of those products. This company is a scam

 

Pearson changes his mind more than he changes his underwear. Told Medicis how Valeant wanted in the cosmetic industry-cash flow business. Now he is selling it off less than 2 years later, remind me isn't this still a booming business.

 

Not if you are killing off the middle class. Who do you think spends more on these products?

 

Well we know it isn't the Valeant employees haha bunch of uglies

 

the real reason for the bid is that it will create a world-leading specialty pharma company in Ophth and derm/aesthetics. It would be a world leader

 

totally - we should by allergan, pfizer and AZ. that would be sick!

 

author has a point though, via the selling of a rapidly declining business under the radar with good motive.

I think it's more likely that purchasing allergan and dumping medicis both made sense. the only other way to play with accounting as much as you can with acquisitions is with divestment

 

Valeant is the king of low ball offers.

If they went to a garage sale and the homeowner was offering an item for 1 pubic hair, Valeant would ask them if they would take half a pubic hair for the item.

 

no - seriously. managed care pressures continue, drug development gets more expensive. the only way to keep the specialty areas healthy and viable is to get bigger . it's business logic. makes sense to me

 

vrx would probably ask for a mouthful of pubic hair in each employee's mouth, after getting the said garage sale item for half a pube. That is how dirty vrx is!

 

Valeant's Allergan Bid Could Face Increased Obstacles
Barron's, August 9, 2014


A threat to inversions and a junk-bond rout worsen the odds of a victory for Valeant in its months' long pursuit of Allergan.

Sometimes unrelated events intersect in unexpected ways.

For example, Sprint (ticker: S) and 21st Century Fox (FOXA) each captured headlines last week by walking away from possible acquisitions when the targets proved unreceptive. Separately, President Obama announced that his administration aimed to curb moves by U.S. firms to incorporate overseas to avoid U.S. taxes. Meanwhile, the selloff in junk bonds continued, with investors pulling money from high-yield bond funds and ETFs for the fourth week in a row.

These developments, disparate as could be, nonetheless represented a trifecta of bad news for Valeant Pharmaceuticals International (VRX), a seller of drugs, eye-care treatments, and over-the-counter products.

Valeant was a U.S. company until 2010, when it purchased a Canadian company and moved its headquarters north of the border, allowing it to enjoy a 3% tax rate. If the U.S. manages to prevent American companies from lowering their tax rates through foreign acquisitions, Valeant's appeal as a potential takeover target for a U.S. buyer would dim considerably. And, if it were to be bought, the price paid likely would be lower than expected because the tax benefit no longer would be available to a stateside acquirer.

Separately, the break-up of pending acquisitions -- such as Sprint's proposed takeover of T-Mobile US (TMUS) -- hurt investors who were betting the deals would occur. It also increased concerns about whether other pending deals would close. Valeant has been rebuffed in its effort to buy Botox maker Allergan (AGN), but the offer, made in April, is pending.

Valeant has offered to exchange each Allergan share for $72 in cash and 0.83 of a Valeant share. As Valeant shares fall -- the stock is down 29% from a February peak of $153 to a recent $109 -- the purchase price offered also declines, as do the odds the deal gets done.

Valeant has fallen 12% in the past two weeks. Two weeks ago, its offer for Allergan was worth $174 a share. Today it is worth $162.

Valeant's declining stock price gets bond investors nervous because it means the company might up the cash component of its bid or boost the offering price. Doing so could increase Valeant's leverage and hurt its bondholders. Junk-bond investors are already nervous, as noted, and the yield on Valeant's intermediate debt has risen to roughly 6.5% from 6.2%. The higher the yield goes, the more it will cost Valeant in interest expenses to fund the Allergan deal.

The bad-news triple play marked the second week in a row that Valeant faced head winds. Two weeks ago, the company reduced its 2014 earnings targets: Revenue guidance for 2014 is now $8 billion to $8.3 billion, down 4% from previous guidance, and non-GAAP, or cash, earnings per share are projected to be $7.90 to $8.10, an 8% decline from the previous target. Last year the company reported cash earnings of $6.24.

"Valeant's revised financial outlook validates Allergan's belief that growth is declining at Valeant and that its business model is unsustainable," Allergan said last week in a news release that questioned a number of the items in Valeant's quarterly report.

Valeant's second quarter earnings raised fresh doubts about the company's ability to grow its business organically -- that is, without acquisitions. The company's organic-growth potential has been questioned, given that it spends only 3% of revenue on research and development, while other drug companies spend closer to 16%. Valeant says it slashes wasteful research spending, providing a new model for the industry.

When Valeant reported second-quarter results, it said organic sales rose 10% in the period. But that increase excludes drugs that face generic competition, and its injectable business, which was sold in July.

Many of Valeant's largest drugs face generic competition, including its second-largest product, the antidepressant Wellbutrin, and its sixth-largest product, Solodyn, an antibiotic used to treat acne. When a drug faces generic competition, its sales often decline quickly as other drug manufacturers enter the market offering the same drug at a lower price. The impact is significant, as organic sales rose only 4% in the quarter when Valeant included generic drug sales but excluded injectable sales.

There is no increase in organic sales if you count both generic-drug sales and the injectables business, calculates Thomas Tobin, an analyst with Hedgeye Risk Management. The injectables business was purchased as part of the $1.8 billion acquisition of drug company Medicis almost two years ago, and Valeant says it is selling the business to avoid regulatory objections as it pursues Allergan.

If Valeant clinches the deal for Allergan, its shares could rally to $200 based on the potential to cut costs dodge U.S. taxes, Tobin says. If it doesn't go through -- and the odds are rising that it won't -- he sees the stock falling to $70.

 

the real reason is becoming apparent