By Svea Herbst-Bayliss, Rod Nickel and Olivia Oran
BOSTON/NEW YORK (Reuters) - Activist investor William Ackman teamed up with Canadian drugmaker Valeant Pharmaceuticals International Inc to make a joint run at buying wrinkle-treatment maker Allergan Inc, according to security filings on Monday.
The move to acquire Allergan, which is worth around $42 billion, is highly unusual as activist investors typically buy stakes and then agitate for strategic change, such as a sale of the company.
One source familiar with their plans said it comes after Valeant tried for over a year to court Allergan but was turned away. Ackman and his $13 billion hedge fund, Pershing Square, have a long record in pushing companies to do his bidding, which could help Valeant buy Allergan.
Allergan and a spokeswoman for Pershing Square declined to comment.
Valeant, which has been on a buying spree and most recently acquired Bausch & Lomb Holdings, said that a merger with Allergan would create an "unrivaled platform for growth and value creation," and that it would soon finalize its proposal and then announce it.
A deal would bring together two mid-sized pharmaceutical companies with expertise in skin care and eye care products. Allergan, which also has a lucrative portfolio of ophthalmic drugs to treat conditions such as glaucoma and dry eye, is larger by revenue, reporting $6.3 billion in sales last year. Valeant reported $5.8 billion in revenue last year.
Allergan's longtime CEO, David Pyott, is also an avid dealmaker who built Botox into a blockbuster by continuously testing it for new uses.
Morningstar analyst David Krempa said the deal would also bring a "massive amount" of potential operating synergies from the two companies' overlap, and Valeant's lower tax rate in Canada.
Allergan shares rose 6 percent to close at $142 per share. Valeant climbed 3.24 percent to close at $126.01.
Still, one Valeant shareholder thought the deal might be too pricey. Allergan shares closed on Monday up 28 percent so far in 2014, trading at all-time highs.
"It's almost impossible to turn it into a high return investment if you pay that kind of price," said Glenn Greenberg, managing director of Brave Warrior Advisors, a Valeant shareholder.
BUYING UP A STAKE
Pershing Square began buying Allergan shares in February, spending roughly $4 billion, its biggest-ever investment, to amass a 9.7 percent stake, according to a regulatory filing on Monday. Pershing used money it had freed up by trimming its stake in Beam Inc and getting out of General Growth Properties Inc, one of its biggest winners ever.
In the regulatory filing, Ackman said Valeant will pay with a combination of stock and cash and expects the cash component to total around $15 billion. Barclays and Royal Bank of Canada have said they are ready to help with financing.
Pershing Square does not shy away from controversy, having waged a very public battle against nutrition and weight loss company Herbalife with a $1 billion short bet unveiled in December 2012.
This year, Pershing Square is delivering some of the hedge fund industry's best returns with a gain of roughly 10 percent through the middle of April, a Pershing Square investor said, while the broader Standard & Poor's 500 index is largely flat.
Hedge fund ValueAct, also known for pursuing activist strategies, sits on the Valeant board but has historically shied away from getting involved in hostile takeovers.
(Additional reporting by Bill Berkrot, Ransdell Pierson; Editing by David Gregorio, Jonathan Oatis and Lisa Shumaker)