Nicholas O’Keefe Examines the Effects of Hostile Takeovers in the Daily Journal

Daily Journal reports that the hostile takeover of Allergan Inc., the maker of Botox, by Valeant Pharmaceuticals International Inc. has been halted by the announcement that Actavis Plc plans to buy Allergan for $66 billion in cash and stock—an amount that would make it the biggest deal so far this year, and one that Valeant has said it “cannot justify” matching. Allergan’s board of directors had been resisting takeover attempts by Valeant and the hedge fund Pershing Square Capital Management for almost seven months, hoping to preserve several drugs currently in development that Valeant would have eliminated in order to cut costs.

According to Kaye Scholer Partner Nicholas O’Keefe, as hostile takeovers drag on, the pressure to maximize value for shareholders grows greater. “You get to a point where there’s just enough pressure from your own shareholders that it becomes difficult to adopt a ‘just say no’ approach,” he added.

O’Keefe noted that any benefits to Allergan’s current board resulting from a sale to Actavis would depend on the terms of the deal, though Allergan may enjoy a bit more continuity of management under this agreement than it would have from a hostile takeover. In addition, O’Keefe said that Allergan’s reluctance to come to terms with Valeant may have stemmed from concern that “the stock component of Valeant’s offer wasn’t worth much,” adding, “They thought Valeant was overvalued because it has inherent flaws in its business model.”