Valeant Makes Skin Care Licensing Deal Amid Allergan Offer

Valeant Makes Skin Care Licensing Deal Amid Allergan Offer Photo by Patrick T. Fallon/Getty

As it continues to pursue a deal for Allergan Inc., Valeant Pharmaceuticals International said Wednesday that it has agreed to sell the licensing rights to several skin care products to Swiss food giant Nestlé for $1.4 billion.

The move came within hours of Valeant increasing its unsolicited bid for Allergan to more than $49 billion from the $45 billion it initially offered. Under the sweetened offer’s terms, the cash portion of Valeant’s offer would rise from $48.30 per share to $58.30, and the company would exchange 0.83 of each of its shares for each Allergan share.

Valeant made its initial hostile takeover bid last month with the backing of activist investor Bill Ackman and his Pershing Square Capital Management hedge fund, which agreed to vote its 9.7 percent stake in Irvine, Cal.-based Allergan—best known for the popular wrinkle treatment Botox—in favor of the acquisition.

Allergan confirmed on Wednesday that it had received Valeant’s new offer and said its board of directors would review it. But the company expressed reservations about the deal the day before in an investor presentation filed with the U.S. Securities and Exchange Commission. In that filing, Allergan attacked the proposed takeover while trying to cast doubt on Valeant’s business structure.

Allergan accused Valeant in its presentation of overvaluing its stock value and real organic growth, contended that it had experienced market erosion and claimed that it did not adequately invest in research and development.

Valeant responded to Allergan’s criticisms at a shareholder meeting Wednesday, stating that it has indeed experienced organic growth and that its research and development strategy was focused more on outputs than inputs. It also disputed Allergan’s contention that Valeant’s recent acquisitions were not successful.

Valeant has expanded aggressively in recent years after relocating to Montreal following a 2010 merger with Biovail Corp. The drugmaker has purchased dozens of companies, including pharmaceutical company Bausch & Lomb for $8.7 billion in a 2013 deal that yielded roles for Cleary Gottlieb Steen & Hamilton and Skadden, Arps, Slate, Meagher& Flom, and skin care company Medicis Pharmaceutical in 2012 for $2.6 billion.

Valeant’s licensing agreement with Nestlé would rid the company of skin care products it makes—including Restylane, Perlane, Emervel, Sculptra and Dysport—and could help resolve potential antitrust issues it might face should its takeover of Allergan move forward.

For Nestlé, the $1.4 billion sale comes as it completes its own $8.9 billion acquisition of Galderma—a pharmaceutical company specializing in dermatology that the Swiss company has agreed to assume full ownership of after jointly operating it with French cosmetics company L’Oreal. The acquisition was approved by shareholders in February and is expected to close in July pending the approval of regulators. With the Valeant deal, Nestlé is poised to gain access to a large professional salesforce in the U.S. and Canada. That would allow Galderma to penetrate those markets, where the demand for antiaging products is growing.

“This move will reinforce Galderma’s leading position in the industry when it becomes Nestlé Skin Health by allowing it to complete its geographic footprint for its strong portfolio of brands and leading medical solutions globally,” Nestlé chief executive Paul Bulcke said in a company statement.

Debevoise & Plimpton is advising Nestlé on the deal with a team led by corporate partner Kevin Rinker. The other Debevoise lawyers working on the matter include IP partner Jeffrey Cunard, tax partner Gary Friedman and executive compensation partner Jonathan Lewis. While this is the first instance in which Debevoise has directly represented Nestlé, the firm has acted as outside counsel to Galderma in various matters for more than 10 years.

Rinker tells The Am Law Daily that Valeant likely entered the licensing agreement to avoid potential antitrust issues related to its attempted acquisition of Allergan and to give it the cash it needs to complete that deal.

That Valeant was motivated to sell the licensing rights of its skin care products to Nestlé suggests to Rinker that the company is confident in its ability to buy Allergan.

“[Valeant] may otherwise have wanted to hold on to these assets,” he said. “If it wasn’t for the Allergan transaction, this transaction would likely not have happened.”

While Valeant said in its Wednesday announcement that the deal with Nestlé was not contingent on a successful takeover of Allergan, the Canadian pharmaceutical giant acknowledged that it would complement the Allergan transaction.

Sullivan & Cromwell and Skadden, Arps, Slate, Meagher & Flom are representing Valeant in connection with the Nestlé deal as well as the Allergan takeover bid. Both firms have long-standing relationships with Valeant, jointly advising the pharmaceutical giant on its $2.6 billion purchase of skin care company Medicis Pharmaceutical Corporation in 2012.

S&C corporate partners Alison Ressler and Sarah Payne, corporate special counsel Lisa Murison, executive compensation and benefits partner Matthew Friestedt and tax partner Ronald Creamer Jr. are representing Valeant in the Nestlé transaction, with assistance from associates Thomas Spahn, Mehdi Ansari, Jennifer Yoon, Regina Readling and Jeffrey Arbeit.

Ressler, Murison, Friestedt, and Creamer assumed similar roles in the proposed Allergan acquisition. Corporate partners Eric Kraustheimer and Alan Sinsheimer, finance partner Neal Mcknight, IP partner Nader Mousavi, antitrust partner Yvonne Quinn, IP special counsel Spencer Simon and antitrust special counsel Eric Queen are also advising on that deal, as are associates Katherine Baudistel, Ari Blaut, Scott Campbell, Regina Readling and Aaron Werner.

The Skadden attorneys representing Valeant in the Nestlé transaction include antitrust partner Steven Sunshine and antitrust associate Maria Raptis. Sunshine is also part of the Skadden team handling the Allergan takeover, as are M&A partner Stephen Arcano, banking partner Robert Copen, corporate finance partner Richard Aftanas and tax partner David Rievman.

Osler, Hoskin & Harcourt is serving as Canadian counsel to Valeant in connection with its Allergan takeover bid. The firm’s team includes cochair Clay Horner, M&A partner Douglas Bryce and antitrust partner Peter Glossop.

Kirkland & Ellis and Canadian firm Davies Ward Phillips & Vineberg are representing Pershing Square with respect to the takeover proposal. New York corporate partners Stephen Fraidin and Richard Brand are leading the Kirkland team working on the deal.

Allergan has enlisted Latham & Watkins to serve as legal counsel on Valeant’s unsolicited offer and has also retained Wachtell, Lipton, Rosen & Katz and Richards, Layton & Finger. Corporate partners Cary Hyden and Paul Tostetti are leading the Latham team, while corporate partners Daniel Neff and David Katz are leading Wachtell’s team. Richard Layton could not be reached for comment on its deal team attorneys.

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