Last updated: June 11, 2014 1:02 am

Valeant prepares to go hostile with Allergan bid

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Dr. Keith A. Marcus injects Allergan Inc. Botox between a patient's eyes at the offices of Marcus Facial Plastic Surgery in Redondo Beach, California, U.S., on Tuesday, April 22, 2014. Valeant Pharmaceuticals International Inc. offered to buy Allergan Inc., maker of the Botox wrinkle treatment, in a cash-and-stock deal valued at $45.7 billion in the latest step of the Canadian company's plan to become one of the world's largest drugmakers. Photographer: Patrick T. Fallon/Bloomberg *** Local Caption *** Keith A. Marcus©Bloomberg

Valeant Pharmaceuticals is preparing to take its bid for Allergan direct to shareholders after its latest $53bn offer was rejected by the maker of Botox.

The Canadian-based company said Allergan’s refusal to enter talks left it with no option but to go hostile in the battle for control of its US rival.

Allergan had earlier said that Valeant’s bid “substantially undervalues” the company and “creates significant risks and uncertainties” for shareholders.

It was the third offer to be rejected by Allergan’s board since Valeant launched its pursuit in April and both sides appeared to be gearing up for a long takeover battle.

Feuding intensified on Tuesday when David Pyott, Allergan’s chief executive, said Valeant’s latest cash-and-share offer involved too much risk because of the Canadian group’s “opaque” financial accounts and “unsustainable” business model.

“They have anaemic growth and their model involves acquiring companies and starving them to death,” he told the Financial Times.

Valeant accused Allergan of making “inaccurate and misleading statements”.

Bill Ackman, the activist investor who owns nearly 10 per cent of Allergan and who is backing Valeant’s bid, last week said he planned to call a shareholder meeting with the aim of replacing a majority of the board.

But Mr Pyott said he was confident he had the backing of shareholders in resisting the May 30 offer, which involved a sweetened cash component of $72 a share, as well as 0.83 Valeant shares for each Allergan share owned.

The takeover battle has become a proxy for debate over how pharmaceuticals companies should seek to generate growth – with Allergan touting its research-driven approach, while Valeant promises to find greater efficiencies.

Mr Pyott has warned that Valeant’s record of sharply cutting research and development spending after deals would destroy value in Allergan, whose products range from its Botox wrinkle treatment to eye drops and breast implants.

Michael Pearson, Valeant’s chief executive, has already led the company to 100 acquisitions since taking over in 2008 – and presided over a near-ninefold increase in its share price. He has argued that the purchase of existing companies and products is preferable to investing in high-risk R&D, something he says is better left to smaller biotech companies.

Mr Pearson last week said he was willing to be patient in his pursuit of Allergan but added: “We will get this deal done.”

Valeant’s successful acquisitions include last year’s $8.7bn takeover of Bausch & Lomb, the eyecare company. But it has suffered setbacks before, including a failed $35bn merger with Actavis, the Dublin-based speciality pharmaceuticals company.

Analysts at BMO Capital predicted a “long fight” for Allergan that could last well into 2015.

Marc Goodman, analyst at UBS, expected Allergan to make its own cost cuts as well as considering share buy backs and acquisitions to bolster its defence. “We believe that management has no desire to negotiate with Valeant,” he said.

Several companies have been touted as alternative partners for Allergan, including Johnson & Johnson, Sanofi and Shire. But Steve Brozak, president of WBB Securities, a biotech-focused investment bank, said: “If a white knight was going to emerge, it would have done so already.”

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