By Svea Herbst-Bayliss
BOSTON (Reuters) - Valeant Pharmaceuticals International Inc can pay "substantially" more for Allergan Inc and should get a fair shot at buying it, William Ackman, the Botox maker's biggest shareholder, said on Friday.
Ackman wrote to Allergan's board the day after the company said it was discussing a merger with another company, widely reported to be Actavis, to fend off hostile bidder Valeant.
Ackman, whose hedge fund Pershing Square Capital Management owns nearly 10 percent of Allergan, asked the board to see which suitor comes up with the best offer.
Allergan on Friday said its board would "carefully consider" any higher bid from Valeant and "respond in due course." So far though, the company reiterated that Valeant's sweetened offers have been "grossly inadequate and significantly undervalue Allergan."
Ackman urged the board to run an auction "where neither party is the favored bidder, and both are encouraged to offer maximum value – before any obligation to pay a breakup fee is incurred."
But by starting exclusive negotiations with Actavis, Ackman told the board "you are tipping the scales in Actavis’ favor, disadvantaging Valeant and discouraging it from raising its offer."
Valeant shares fell 1.57 percent to $127.07 on Friday amid talk that the company's proposed plan to buy Allergan might collapse. Allergan stock was down 1.6 percent at $194.18.
Valeant and Ackman shocked Wall Street in April when they said they were working on a takeover deal that Allergan has steadfastly rebuffed as it tries to find another merger partner.
Valeant did not have an immediate comment on Ackman's letter.
But late last month after releasing quarterly earnings, Valeant Chief Executive Michael Pearson laid the groundwork for a higher bid. A possible revised stock-and-cash bid would be worth more than $200 per share, assuming Valeant's stock rises, and would include more cash, Pearson said. The current bid is worth about $52.7 billion or $176 per share.
Ackman's letter on Friday underscores the growing tensions between the two sides as Allergan races to find another suitor before a special shareholder meeting next month where Ackman is trying to replace most of Allergan's board members.
(with additional reporting by Rod Nickel and Caroline Humer; Editing by Lisa Von Ahn and Meredith Mazzilli)