Rebuffed after making a private overture, Canada's Valeant Pharmaceuticals ($VRX) has gone hostile in its pursuit of Cephalon, offering $5.7 billion for the business and threatening to walk in a month if investors don't take the money and run. If it's successful, Valeant will gobble up an operation that boasts of a blockbuster narcolepsy drug and a pipeline of cancer therapeutics that has been beefed up in recent weeks through new acquisitions.
Valeant bid $73 a share for Cephalon ($CEPH), a 24 percent premium over its Tuesday close of $58.74. But Cephalon's shares soon broke the $77 barrier as speculators bought into the first big takeover game in biopharma since Sanofi-Aventis finally made the deal to acquire Genzyme.
Biopharma has been going through a wave of M&A deals in the early part of 2011 and Cephalon has certainly played its part in the surge, with recent agreements to acquire Gemin X and ChemGenex. Altogether Cephalon has pushed through seven acquisition deals in the past year. But Valeant doesn't like early-stage deals, and its CEO particularly didn't like the Gemin X takeover.
"You are quite aware that investments in early-stage development programs are inconsistent with our strategy and quite frankly, from our perspective, this move has reduced the value creation potential of the proposed merger," Valeant's J. Michael Pearson wrote to Cephalon's CEO a few days ago. "We would hope that you delay any further such deals until our two companies have concluded this process, one way or the other." Now Pearson tells Bloomberg that the deal with Cephalon will be done in a matter of weeks, or not at all.
"We put in an offer, tried to engage, but they wouldn't," Pearson told the business news service. "So we will go to shareholders. If they don't like it, we will walk in a month." But Pearson is also signaling that there's some upward flex in what it's willing to pay for Cephalon. "While we are willing to consider a higher price if due diligence supports this, we will remain very disciplined on price," he told analysts this morning.
Valeant has been growing increasingly confident since it acquired Biovail last summer. Its shares are up 66 percent since that last big deal and the company made it clear in January that it would pursure new acquisitions to further grow the business.