Allergan, which makes popular anti-wrinkle treatment Botox, said it believed Valeant's business model was not sustainable and that the offer was too risky because of this uncertainty about the company's long-term growth.
"Valeant's model of cutting and slashing really doesn't work for more than a very short period of time," Allergan Chief Executive Officer David Pyott said during a conference call with investors to explain the move.
He said Valeant's billions of dollars in cost cuts would prevent Allergan from delivering growth that it could produce on its own, and he set a target of a 20 percent to 25 percent increase in earnings per share in 2015.
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Valeant spokeswoman Laurie Little said the company was disappointed that Allergan has rejected the offer and that it remained committed to the transaction. Ackman did not have an immediate response.
Allergan had said it was considering the offer, but within days, it adopted a so-called poison pill provision to slow a takeover. If Ackman's Pershing Capital raises its stake beyond the 10 percent threshold, other investors could buy discounted shares.
Allergan has also been seeking other buyers such as Shire, according to sources familiar with the matter.
Pyott said during the call that external moves were options, "but it would be totally premature to discuss them."
He also said he was watching the national debate about companies that move their tax bases outside the United States and that he expected changes to U.S. tax rules.
Laval, Quebec-based Valeant has acquired roughly a half-dozen companies in the last two years and has set its sights on becoming one of the world's five biggest drug companies.
Valeant bought contact lens maker Bausch & Lomb Holdings for $8.7 billion last year, shortly after acquiring Medicis Pharmaceuticals for $2.6 billion in 2012. Valeant has grown by cutting spending and buying companies or proven products that will boost earnings. The company also domiciles assets in overseas tax havens.
Valeant Chief Financial Officer Howard Schiller said last week that Allergan spent too much on research and development and that its selling, general and administrative expenses were excessive.
Valeant said in announcing its April 22 bid for Allergan that it expected at least $2.7 billion in annual cost cuts.
Allergan said on Monday that it expected to increase its earnings per share by 20 percent to 25 percent in 2015.
The company also forecast double-digit sales increases and annual compound growth in earnings per share of 20 percent over the next five years, helped by recent and expected drug approvals.
BMO Capital Markets analyst David Maris said he believed Allergan's response will pressure Valeant to detail why its offer will not hurt shareholders.
"We remain of the belief that it is less than 50 percent likely that Allergan is acquired by Valeant," Maris said in a research note.
Valeant shares have risen 4 percent since announcing the offer, while Allergan shares have gained nearly 14 percent. In morning New York Stock Exchange trading, Allergan fell 1 percent to $159.53, while Valeant was off 1.3 percent at $129.52.