Allergan Doesn't Accept Ackman's $600 Million Gift

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Updated from 9:01 a.m. ET to include Valeant statement, analyst comments

NEW YORK ( TheStreet) --  Allergan has decided not to engage with Pershing Square's Bill Ackman and Valeant Pharmaceutical s just two weeks after the hedge funder decided to fork over $600 million to investors as part of his takeover effort.

>>Read More: Pershing Square and Valeant's Allergan Deal a Watershed

The botox-treatment specialist said on Tuesday its board has unanimously rejected Ackman and Valeant's takeover offer, which included 0.83 of Valeant common shares, $72.00 in cash per share of common stock and a contingent value right related to DARPin sales.

"Valeant's revised proposal substantially undervalues Allergan, creates significant risks and uncertainties for Allergan's stockholders and does not reflect the Company's financial strength, future revenue and earnings growth or industry-leading R&D," David E.I. Pyott, Allergan's chairman of the board and chief executive officer, said in a Tuesday statement.

Pyott also said he believes investors are confident in Allergan's growth prospects and are willing to continue investing in the company as a standalone. On May 12, Allergan forecast it would generate double-digit sales growth and 20% compound earnings-per-share growth over the next five years, in addition to approximately $14 billion in additional free cash flow during that time span.

"The Board is confident that the Company will create significantly more value for stockholders than Valeant's proposal. We look forward to updating stockholders on or around the time of our second quarter earnings announcement," Pyott concluded.

In rejecting Ackman and Valeant's latest offer, Allergan reiterated its belief that Valeant's business model is unsustainable, has low organic growth, is over-leveraged, and relies too heavily upon acquisitions for growth.

Allergan shares were little changed at $163.80, while Valeant shares were falling over 1% to $124.99. Year-to-date, Allergan has risen over 47%, mostly as a result of Ackman and Valeant's takeover interest.

"Rather than discussing the benefits of the proposed combination with Valeant, Allergan's Board continues to throw out innacurate and misleading statements about Valeant and is recycling the same unsupported arguments about Valeant that have already been addressed, leaving us no choice but to take our offer directly to shareholders," Laurie Little, Valeant's VP of Investor Relations, said in an e-mailed statement.

Ackman's Smart Move Rebuffed

Ackman's decision in late May to give $600 million to Allergan shareholders in a revised proposal with Valeant to buy the company looked like a smart move. It allowed Valeant to effectively improve on its takeover offer and could have been enough to bring all parties to the negotiating table.

It also underscored Ackman's confidence in the strategic merit of Valeant's play for Allergan.

As part of a revised offer, Ackman agreed to taking only Valeant stock for Pershing's 9.7% holding of Allergan shares, in addition to a lower price in the cash and stock deal. That offer meant Pershing Square wouldn't receive a dime of cash for a significant time after the prospective deal closes.