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Valeant dials up its Allergan bid and throws in some R&D promises

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Valeant CEO J. Michael Pearson

As promised, Valeant Pharmaceuticals ($VRX) has returned to the deal table with a sweetened pitch for Allergan ($AGN), putting up a bigger offer with more cash and even making an uncharacteristic commitment to R&D.

Under the new proposal, for each Allergan share, Valeant would hand over $58.30--a $10 raise over its previous bid--and 0.83 shares of itself, valuing the total deal at about $49.4 billion, or $166 per share. That's a 21% increase in cash consideration and a roughly 5% boost over its previous offer of $47 billion.

Furthermore, in a break from character, the R&D-averse Valeant is promising to stay the course on one of Allergan's pipeline stars. The new offer includes a pledge to earmark up to $400 million for Darpin, an in-development treatment for macular degeneration, and Valeant wants to add a contingent value right that would pay Allergan owners up to $25 a share if the drug reaches its full potential, which the company estimates at $20 billion over 10 years. Valeant said it would retain the Allergan employees at work on the Phase III drug, which it believes could compete with Regeneron's ($REGN) blockbuster Eylea.

Allergan CEO David Pyott

However, considering the tone of Allergan's recent PR offensive, the new offer is likely to fall on deaf ears among management. In a presentation to investors on Tuesday, Allergan poked holes in Valeant's claims of organic sales growth, questioned its management of high-dollar acquisitions Bausch + Lomb and Medicis, and essentially refuted the company's whole approach to making money in the drug development business.

But Valeant CEO J. Michael Pearson, in a letter to Allergan chief David Pyott outlining the new offer, sounded a much friendlier tone, saying the earlier presentation contained "numerous errors and misstatements of facts" and urging his counterpart to consider the potential benefits of a merger.

"It appears based on Allergan's recent public statements that you have a fundamental misunderstanding of our business model and its performance," Pearson wrote. "We would be delighted to provide you and the Allergan board with the opportunity to better understand our business model and address any concerns that you may have. This can be best accomplished by an in-person meeting with our team to better understand our business."

But Pearson's key audience remains Allergan shareholders, who could pressure management into accepting the hostile advance. In a survey of Allergan investors, JPMorgan found that 60% wanted Valeant's new deal to come in between $181 and $200 a share. Pearson and Valeant are counting on the sweetened cash consideration to make up for the discrepancy, hoping the latest offer will spell the tipping point that galvanizes shareholders.

- read Valeant's letter
- check out the company's presentation on the new offer

Related Articles:
Allergan investors want up to $200 per share from Valeant
Pyott's 'conflict of interest' thwarting Valeant's buyout efforts, Ackman says
Analysts brace for a brawl as Valeant moves ahead with $46B Allergan bid

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