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Allergan fashions a poison pill as raiders at Valeant promise to gut R&D

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Allergan ($AGN) didn't waste any time in coming up with a poison pill to help thwart a hostile, $46 billion takeover attempt by Valeant ($VRX) CEO J. Michael Pearson and his hedge fund ally William Ackman. The board issued a shareholder rights plan on Tuesday evening giving its general investors the right to buy discounted shares once someone accumulates a threatening stake in the company of 10% or more.

The poison pill, though, is just one of several fronts that the Allergan board can open up in its war with Pearson and Ackman. Valeant's chief has a clear record on takeovers. Pearson won't pay just any price to complete a buyout. And he can be dissuaded when one of his targets pulls off an acquisition that adds considerable risk to the picture--an easy task in biotech.

Allergan CEO David Pyott has already made it clear that he plans to use a cache of cash to buy new assets this year. Pyott told FierceBiotech in January that he could spend up to $10 billion on takeovers. Any takeover talks he may be engaged in now could be easily revved up, adding the kind of acquisition that would be even harder for Valeant and Ackman to swallow than a poison pill. A poison pill now could buy some time to complete a transaction.

But it won't be easy. Pearson made it clear on CNBC today that he isn't going to just walk away. "We are disappointed but on the other hand, I think this deal will get done," he said, according to a brief on Reuters.

Valeant's blueprint for a merger includes a quick gutting of Allergan's growing R&D operations, which has the enthusiastic support of Pyott. In recent years Allergan's research staff has swelled to 2,500, with plans to push that figure up to about 3,000. In its release on Tuesday, Valeant said it would reserve "at least $300 million in annual R&D spend to complete future high-probability and late-stage projects."

Valeant is already spending more than a billion dollars a year on R&D, and plans to increase that to $1.5 billion in the next few years. Adding some early-stage R&D work, anathema to Pearson, would be relatively easy to accomplish.

Valeant reserved even deeper cuts for Allergan's sales and marketing group, which would bear the brunt of any cost cutting.

Win or lose, though, Ackman and Pearson have struck on an alliance that they can use in other buyouts. Pearson has been outspoken about engineering growth through acquisitions, reviewing dozens of potential deals at any time. Allying himself with an "activist" investor like Ackman--who's always looking for a quick killing as the stakes he accumulates rocket up in value--gives him deeper pockets to go after bigger deals.

If Allergan gets away, there are plenty of additional deals to be done.

- here's the release on the poison pill

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