|Allergan CEO David Pyott|
Allergan ($AGN) today confirmed what much of the industry has been buzzing about for some time now: It's in takeover discussions with another company other than the acquisition-hungry Valeant ($VRX). And the business news outlets quickly identified Actavis ($ACT) as the interested party.
"We have been approached by another party regarding a potential merger transaction," Allergan alerted investors in an SEC filing. "Discussions between us and that party have continued and may lead to negotiations. Our board has determined that premature disclosure with respect to the possible terms of any transaction might jeopardize continuation of any discussions or negotiations," so don't look for any more information than that today.
Allergan CEO David Pyott has been fighting off Valeant's stubborn, $54 billion takeover bid, expecting Valeant to come in and gut the biotech's R&D division--a classic move for the would-be buyer that would also allow Valeant CEO Michael Pearson to use Allergan's cash flow from Botox and other products to pay down its growing debt.
Actavis, meanwhile, has been considered a likely White Knight in this process, as CEO Brent Saunders assumes more of a Big Pharma profile for a company that now includes Forest Laboratories' pipeline. Expanding its drug development and product sales would make sense for Actavis, which has grandfathered in a low tax rate through a recent tax inversion deal.
Shibani Malhotra, an analyst at Sterne Agee & Leach, joined a growing group of Allergan watchers who believe that a bid from Actavis makes more and more sense. Two days ago a federal judge rejected Allergan's attempt to block Valeant ally Bill Ackman from voting his 10% stake at an upcoming shareholders meeting in December.
"We now expect Allergan to more aggressively consider its alternatives including a possible friendly deal with another pharmaceutical company or an acquisition of its own," Malhotra noted in response, according to a report from Bloomberg.
Actavis looks to be the most likely alternative for Allergan, which saw its shares surge slightly today.