Cephalon Rejects Valeant's Hostile Bid as 'Inadequate'

|
Includes: CEPH, VRX
by: The Burrill Report

By Michael Fitzhugh

Cephalon (NASDAQ:CEPH) rejected a $5.7 billion hostile bid by Valeant Pharmaceuticals (NYSE:VRX) as “inadequate” and not in the best interests of its shareholders, signaling a likely start to negotiations for a higher offer.

The Frazer, Pennsylvania company lashed out at what it said was “opportunistic timing,” on the part of Valeant, saying the Canadian company's $73 per share bid is based on a value near the stock's 52-week trading low.

Valeant CEO J. Michael Pearson set the stage on the day of the offer by noting that, if his company found additional value in Cephalon during due diligence, it had some room to raise its $73 per share bid offer if needed.

In a letter to Pearson regarding the bid, Cephalon CEO J. Kevin Buchan said the offer “significantly undervalues Cephalon, its key assets, and its prospects,” including its portfolio of marketed products or its pipeline, which includes ten late-stage product candidates.

Valeant initiated its bid for Cephalon on March 18, giving the company until March 29 to respond. But the talks became less friendly as Cephalon moved ahead with its own plans to expand its pipeline. Those plans included the March 21 acquisition of the cancer therapeutics company Gemin X Pharmaceuticals for as much as $525 million and a $231 million takeover bid for ChemGenex Pharmaceuticals just a week later.

Valeant, Canada's biggest drugmaker, sees opportunities to maximize Cephalon's growth and cash flow, by boosting sales of its top products, such the narcolepsy drug Provigil and the cancer-related pain medicine Fentora, and monetizing the U.S. company's pipeline through new partnerships. The Canadian company also sees in Cephalon’s European branded generic business a complement to its own operations there.

Parallel to its bid, Valeant has launched an effort to replace Cephalon’s current board of directors with its own nominees through a consent solicitation process. That effort, if successful, would place seven new directors on Cephalon’s board, including former Quintiles president and COO Santo Costa and Anders Lonner, CEO and group president of Meda AB.