Canadian pharmaceuticals company Valeant Pharmaceuticals International, Inc. (VRX) recently announced the withdrawal of its $7.50/share offer for California-based eye-care company ISTA Pharmaceuticals (ISTA).
In December last year Valeant Pharma had made a hostile bid to acquire ISTA Pharmaceuticals for $6.50/share in cash. ISTA rejected the proposal the very same day. ISTA’s Board of Directors called the offer unrealistic stating that the bid grossly undervalued the company. In mid-January, Valeant Pharma raised its bid for ISTA to $7.50 from $6.50 per share in cash. Valeant Pharma had also offered to increase the price to $8.50 per share if ISTA provided some confirmatory due diligence information. The offer was supposed to be valid till January 31, 2012, but was however withdrawn by Valeant Pharma management just a day before due to lack of progress in negotiations.
ISTA is continuing with its strategic review process announced in mid-December 2011. The company is in discussion with a number of parties interested in entering into a strategic transaction with ISTA. It had offered Valeant Pharma to participate in the ongoing review process.
This is not the first instance where Valeant Pharma failed to close upon an acquisition. Last year, Valeant Pharma had proposed to acquire Cephalon Inc. for $73 per share. Cephalon’s Board of Directors rejected Valeant Pharma’s take-out bid as they found the offer too low and not in the best interest of its shareholders. Eventually, in May 2011, Cephalon agreed to be acquired by Teva Pharmaceuticals (TEVA).
Nonetheless Valeant Pharma did succeed in making a number of acquisitions in 2011. It added PharmaSwiss and Sanitas in Europe, Ortho, a dermatology unit of pharma giant Johnson & Johnson (JNJ), Dermik, the dermatology unit of Sanofi (SNY) in the US, iNova in Australia, and Afexa Life Sciences, Inc. in Canada. The acquisitions are expected to help Valeant Pharma achieve its aim of becoming a top 15 pharmaceutical company by 2013 end.
Our Recommendation
We currently have a Neutral long-term recommendation on Valeant Pharma. The stock carries a Zacks #2 Rank (Buy rating) in the short run.
Valeant Pharma, as it stands today, was formed following the merger of Biovail and Valeant in September 2010. We believe the combined Biovail/Valeant entity is a unique company as it has a global reach (including exposure to important emerging markets), a diversified revenue base, a favorable tax structure and limited patent exposure. Moreover, accretive acquisitions add to the company’s investment thesis.
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