Allergan will not go quietly. The pharmaceutical company says that it has contacted Sanofi and Johnson & Johnson to see if either company would like to buy it, says Bloomberg.
In deal land they call this “white knight.” In this case, Allergan’s buyer would be saving the company from an unsolicited bid from its competitor, Valeant, last week.
Valeant teamed up with hedge fund manager Bill Ackman to attempt to acquire Allergan in a $US45.7 billion deal. They used a technique perfected in the 1980s called a “toehold.” To put it as simply as possible, Ackman’s fund bought almost 10% of Allergan, will use its influence to ensure the sale to Valeant goes through, and will lend cash to the acquisition deal.
Thing is, Allergan knows that if it is acquired by Valeant it will have to do business the Valeant way. That means cuts everywhere, especially to research and development. The average pharmaceutical company uses 19% of its revenue for R&D. Valeant like that number below 5%, and prefers to acquire new products by acquiring the companies that make them.
As for this “white knight” scenario, Wall Street figured this might be an option. In a note yesterday, JP Morgan wrote that it :
A “white knight” acquisition of Allergan appears less likely [than the deal going through], in our view. We see a “white knight” friendly acquirer as the next most likely scenario for Allergan, and would expect an offer would have to be at least $US175/share (and would likely be all-cash). We believe such an outcome would generate modest upside for AGN shares from current levels, while we would anticipate VRX shares falling to the $US115-125 level as the market assigns a lower probably to an MOE type transaction this year.
Piper Jaffray specifically noted that the company may want to merge with Shire Pharmaceuticals.
Bloomberg reports that investment banks have also been making the rounds, seeing if Bayer wants to acquire Allergan. Way to try to win that deal bank, guys.