Cephalon’s recent acquisitions are undermining Valeant’s $73 per share takeover bid, latter’s CEO claims.

Valeant Pharmaceuticals has made public a roughly $5.7 billion takeover bid for Cephalon, after private approaches to the latter’s directors apparently failed to spark any obvious enthusiasm. The $73 per share share cash offer was announced just hours after Cephalon reported its own $213 million proposal to acquire cancer drugs firm ChemGenex Pharmaceuticals, and a week after it announced its $225 takeover bid for Gemin X. The $73 per share bid for Cephalon from Valeant represents an approximately 29% premium on Cephalon’s 30-day trading average. If a takeover did eventually go ahead, Valeant would also look to replace the Cephalon board. 

Valeant has been in contact with Cephalon privately since early March with a view to formal merger discussions. Within the last few days the firm has attempted to stir Cephalon into more committed discourse by submitting an alternative offer to the $5.7 billion total takeover. The alternative deal structure would involve it shelling out $2.8 billion, or $37 per share, to buy Cephalon’s U.S.-based assets and sales operations outside the field of oncology, all its R&D programs in CNS and pain indications, and all assets associated with Cephalon’s acquired Meda business.

This transaction would essentially allow Cephalon to continue operating as a stand-alone oncology-focused company with enough cash, near-term revenue and infrastructure to develop and commercialize the majority of its pipeline and fuel its early-development stage acquisition strategy, Valeant suggests.

Cephalon claims it simply hasn’t had enough time to consider the offers. However, limp responses aside, Valeant stresses that what it believes is a reasonable price for Cephalon is being seriously undermined by the latter’s continued drive to make what Valeant calls risky investments. “I was very disappointed to hear that the Cephalon board would consider our offer too low to warrant it engaging in discussions with us,” writes Valeant CEO J.Michael Pearson to Kevin Buchi, his counterpart at Cephalon, in a letter sent last week after Cephalon had announced its acquisition of Gemin X but before the ChemGenex deal was made public. “I was extremely disappointed that on Monday you announced an agreement to acquire another early-stage R&D program for $225 million cash and other potentially significant obligations before engaging in a discussion with us regarding our offer. You are quite aware that investments in early-stage development programs are inconsistent with our strategy and quite frankly, from our perspective, this move has reduced the value creation potential of the proposed merger.”

Valeant still wants to push on with merger talks but admits it isn’t willing to keep its offer open indefinitely, and will eventually start looking at other opportunities, Pearson adds. “Since the time of our original offer you have announced two deals that will reduce your cash on hand by over $400 million – which makes Cephalon a less attractive acquisition from our standpoint”, he reiterated in a letter sent to Buchi yesterday. “As a result, we are seriously considering the need to reduce our original $73 per share proposal … My board and I are increasingly concerned that as each day goes by, the value of Cephalon to Valeant shareholders is decreasing …. At some point, a potential merger between Cephalon and Valeant will no longer be attractive to us”.

Valeant says it’s now time that Cephalon’s shareholders were given the chance to assess its offer for themselves. “Given the importance of this transaction proposal to shareholders of both companies, and given that Cephalon’s management continues to pursue strategies that in our view reduce the value of a merged entity, we have decided to make our proposal public,” Pearson remarks. “We believe this will enable the Cephalon stockholders to determine for themselves whether their board and management should engage with Valeant in a meaningful and productive dialogue regarding our proposal.”  

Cephalon, meanshile, says its board will meet to discuss the proposals and will respond to Valeant next week. It recommends shareholders hang fire on any actions until then.

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