May 24, 2024

DealBook: Cephalon Rejects Valeant’s $5.7 Billion Takeover Bid

8:49 p.m. | Updated

Cephalon on Tuesday rejected an unsolicited $5.7 billion takeover bid by Valeant Pharmaceuticals International, arguing that the offer was too low and opportunistic.

Cephalon, which had already rebuffed several private merger approaches over recent months by Valeant, criticized the latest offer as more of the same.

Under the terms of its publicly disclosed bid, Valeant would pay $73 a share in cash. Valeant, a maker of a wide variety of drugs, argued in part that Cephalon faced several challenges that would be hard to surmount on its own. Among these is the expiration next year of a patent for Provigil, a treatment for narcolepsy and some other sleep disorders.

But Cephalon argued that the Valeant offer was pegged to its 52-week stock-price low, and failed to account for future growth from its pipeline of drugs.

“This is all about shareholder value,” Kevin Buchi, Cephalon’s chief executive, said in a statement. “The Cephalon board of directors is committed to maximizing value for our shareholders, and we take this responsibility very seriously.”

But Cephalon faces another potential challenge: Beyond offering cash, Valeant also plans to submit a proposal to replace Cephalon’s board with its own chosen directors.

Once Valeant delivers its proposal, shareholders will have 60 days from that day to vote on the plan.

Valeant announced its slate of nominees to Cephalon’s board on Tuesday, saying that its so-called consent solicitation would allow Cephalon’s shareholders to decide if they wanted to pursue a deal.

If Valeant succeeds in replacing Cephalon’s board, its nominees could remove impediments to a potential deal, including a poison-pill provision. Valeant dangled the prospect of a higher price if it were allowed to more closely examine Cephalon’s books.

“We stand ready to quickly commence and close our transaction as proposed, unless Cephalon stockholders do not support our offer, in which case we will focus our attention on other opportunities to invest our capital,” J. Michael Pearson, Valeant’s chairman and chief executive, said in a statement. “While we are disappointed with the response from Cephalon’s board, we remain committed to our process.”

Shares in Cephalon have risen more than 33.6 percent since the takeover proposal was disclosed, closing on Tuesday at $77.37. That is above the offer, suggesting that investors believe that Valeant or another bidder will make a higher bid.

Shares in Valeant rose 1.9 percent on Tuesday, closing at $53.96. Its shares have also risen since the company announced its offer, having jumped more than 20 percent.

Cephalon is being advised by Deutsche Bank, Bank of America Merrill Lynch and the law firm Skadden, Arps, Slate, Meagher Flom.

Here is the list of Valeant’s nominees for Cephalon’s board:

  • Santo J. Costa, the former chief operating officer of Quintiles
  • Richard H. Koppes, the former general counsel and interim chief executive of Calpers
  • Lawrence N. Kugelman, the former chief executive of Coventry Health Care
  • Anders Lonner, the former chief executive of Meda
  • John H. McArthur, a former dean of the Harvard Business School
  • Thomas G. Plaskett, a director of Alcon and RadioShack
  • Blair H. Sheppard, the chairman and former chief executive of Duke Corporate Education and a former dean of Duke’s Fuqua School of Business

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