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Investors were happy Tuesday with the titanic $45.7 billion bid for Botox maker Allergan Inc. (NYSE: AGN) – and the stock soared up to 17% in response.
News that activist investor Bill Ackman has teamed up with Valeant Pharmaceuticals International Inc. (NYSE: VRX) to take over Allergan sent shares of both companies soaring. Allergan shares surged some 17% to a 52-week high of $165.39 intraday. Meanwhile, Valeant shares jumped more than 7% to $134.42.
Under proposed terms, each Allergan share would be exchanged for $48.30 in cash and 0.83 shares of Valeant. That's a healthy 7% premium to Allergan's closing price on Monday.
Ackman's Pershing Square Capital Management LP, which amassed a 9.7% stake in less than two months, making it Allergan's biggest shareholder, has agreed to take all stock. Valued at around $4 billion, it is said to be Ackman's biggest investment ever.
Moreover, in a nod of confidence about the deal, Pershing plans to remain a long-term shareholder of the combined company.
While an unusual arrangement, Valeant was keen to work with Ackman on the deal because his hedge fund could stockpile Allergan's shares (as much as 10%) without raising too many eyebrows or making a public disclosure. Valeant would have been required to disclose such a stake, according to Bloomberg.
It's not yet clear if Ackman and Valeant will succeed. But, if they did, the two pharmaceutical giants would nicely complement each other…
Why Valeant Sees Allergan (NYSE: AGN) as Attractive
Both companies have similar product portfolios and each sport a more than $40 billion stock-market cap. Combined they would create a global giant in the eye and skincare industries.
Valeant's aim is threefold: to realize substantial savings by joining the companies' skin and eye care businesses, to save on research and development costs, and to create an international pharmaceutical behemoth.
Here's how Allergan would help achieve that goal…