Valeant Seeks to Buy Cephalon for $5.7 Billion
Canadian drugmaker Valeant Pharmaceuticals International said it made an unsolicited $5.7 billion bid to buy Cephalon and plans to make its case directly to Cephalon shareholders.
Valeant , formed when Canada's Biovail bought U.S.-based Valeant in September for $3.3 billion and took its name, said it planned to propose a slate of directors to replace Cephalon's board with its own nominees.
The $73-a-share bid, which Valeant expects to finance entirely with debt, represents a 24 percent premium over Cephalon's closing share price of $58.75 on Tuesday, and about a 29 percent premium over the U.S. drugmaker's 30-day trading average.
Valeant Chief Executive Michael Pearson said Cephalon in meetings between the companies signaled a belief that its shareholders would not find the Valeant offer compelling. But he plans to talk to Cephalon shareholders directly beginning next week.
"We'd love to do this on a friendly basis and if we get a clear signal that their shareholders are not interested, there's many other things that we can do and we'll move on. We don't have to do this deal," Pearson told Reuters in a telephone interview.
"In next few weeks we'll get a good sense. This is not going to be a long process," Pearson said.
Cephalon shares rose to $72.89 in extended trading after the Valeant bid was announced. Valeant climbed to $51.00 from a close of $44.39 on the New York Stock Exchange.
Pearson said Valeant would consider raising its offer if allowed to do due diligence.
"There will be a lot of pressure on them to at least open their books to due diligence," David Maris, an analyst with Credit Agricole Securities, said of Cephalon management.
"Prior to this offer, we believe Cephalon was fundamentally undervalued," he added.
Cephalon said in a statement its board would consider the Valeant offer, as well as a separate offer it made to acquire Cephalon's non-oncology related assets for $2.8 billion.
The U.S. drugmaker said it will respond to Valeant next week. It advised its shareholders to await that response and said they do not need to take any action regarding Valeant's proposal.
In Cephalon, Valeant would gain a company with strong cash flow, a growing cancer drug in Treanda and several other products, a branded generics business that would fit in with its own, and a promising pipeline of drugs in development.
Pearson, whose company also sells dermatology and neurology products, said it would seek partners for Cephalon's experimental drugs "to diversify the risk and reduce the spend on the R&D side." Valeant predecessor Biovail has a checkered history that the Cephalon board may take into consideration.
Earlier this month it reached a settlement with U.S. securities regulators over allegations that Biovail had committed accounting fraud.
The Securities and Exchange Commission had accused Biovail and four current and former officers of overstating earnings and hiding losses to meet earnings forecasts. In 2007, Biovail paid $138 million to settle a shareholder lawsuit accusing it of making false statements to inflate its stock price.
Cephalon has been seen as vulnerable since its founder and longtime chief executive, Frank Baldino, died in December while on medical leave. Baldino was replaced by former Chief Operating Officer Kevin Buchi.
In addition, the company's top-selling sleep disorder drug Provigil is expected to begin facing competition from cheaper generic versions next year, and progress in switching patients over to its newer Nuvigil has been slow.
Cephalon has been on a recent buying spree of its own in an effort to bolster its development pipeline. On Monday, it offered $231 million to buy Australia's ChemGenex Pharmaceuticals, a week after agreeing to acquire privately held biotechnology company Gemin X for $225 million. In December, Cephalon acquired a 20 percent stake in Australian stem cell company Mesoblast.
Pearson believes he can convince Cephalon shareholders that he can do more for them than current management. "We're a company that's really focused on generating as much cash as we can for shareholders and deploying it intelligently," he said. "We think this acquisition will help us on both those missions."