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Valeant to sweeten Allergan bid next week but won't make all-cash offer

Valeant chief executive Mike Pearson speaks to shareholders at the company's annual meeting on Tuesday, May 20, 2014 in Laval.THE CANADIAN PRESS/Ryan Remiorz

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Valeant chief executive Mike Pearson speaks to shareholders at the company's annual meeting on Tuesday, May 20, 2014 in Laval.THE CANADIAN PRESS/Ryan Remiorz

LAVAL, Que. - Valeant Pharmaceuticals will launch its latest push to acquire Botox-maker Allergan next week by defending its business model and sweetening its bid, but won't make an all-cash offer.

The Quebec-based company said Tuesday that its board will meet in the coming days to finalize the new offer, but dampened speculation to the contrary by insisting it won't remove the equity component of its nearly US$47-billion offer.

Valeant CEO Michael Pearson said that Allergan (NYSE:AGN) shareholders he has spoken with wanted more Valeant equity and less cash.

"They believe the combination will not only create short-term value in terms of the premium but longer term will continue to perform," he told reporters.

"Since (Allergan) management is questioning the currency of our stock, whether we decide to offer a little bit more cash, maybe we'll do that," he added, refusing to give any details of the revised offer.

Under its current offer, Valeant would buy each Allergan share for $48.30 in cash and 0.83 of a Valeant share, giving Allergan shareholders control of about 43 per cent of new combined company.

Pearson said he's trying to construct an offer that shareholders of both companies will support by inviting them to provide feedback before the offer is tabled.

"It's not usual but often our approach, quite frankly our general thesis as a company and operating model, is unusual too," he said after Valeant's annual meeting.

The company plans to present the new offer May 28 at an event in New York, where it will respond to Allergan's criticisms.

He said allegations that Valeant has no organic growth, that eyecare company Bausch & Lomb is not growing and that the company has an unsustainable business model will be countered by executives who will be flown to the meeting from around the world.

Pearson denied that Valeant is making Allergan's refusal to negotiate personal, declining to comment on co-bidder Bill Ackman's assertion Monday that Allergan CEO David Pyott has a "conflict of interest" and is blocking the deal because he could lose his job.

"We're not making this personal, this is all about business. It's all about what shareholders want. What's good for shareholders is how boards should be acting," he said.

"We have met with many, if not most, of their shareholders privately and they have all told us they want this deal to be done."

Valeant plans to launch a "referendum" in mid to late June to poll Allergan shareholders in order to convince the company's management and board to enter into discussions.

"I do believe that Allergan shareholders are also interested in that (but) it may turn out that we're wrong. Maybe people don't want us to sit down and then we'll know."

Pearson said he doesn't believe the process will with drag on for a year as some fear but acknowledged he had been surprised by the amount of reticence to engage in talks.

Allergan said Tuesday that it has received letters of support from more than 500 physician customers, patient advisory groups and medical associations supporting the California-based company's efforts to remain independent.

The U.S. company said the letters point to support for Allergan's commitment to research and development, which it said Valeant threatens as it seeks US$2.7 billion in cost savings with the takeover deal.

Pearson said Valeant has chosen not to appeal to the thousands of physician customers, many of whom support the deal, and instead focus on the company's shareholders.

He said the deal would be good for shareholders and Canada since Valeant would move some of Allergan's dermatology manufacturing to Quebec and its drug products to an underutilized facility in Steinbeck, Man.

"We'll probably consolidate manufacturing in Canada, where our main manufacturing is for North America."

Pearson also defended the company's low tax rate, in which it only pays taxes on earnings in the countries it operates rather than on global profits, as is required in the U.S. and Japan.

He called Canada's taxation rules "quite informed" and said they help attract companies and create jobs.

Shares in Valeant (TSX:VRX) (NYSE:VRX) were up $4.96 or 3.59 per cent at $142.56 Tuesday afternoon in Toronto and up $3.34 or 2.66 per cent at US$130.59 in New York. Allergan's share were up $2.06 or 1.33 per cent at US$161.83 in New York.

Note to readers: Corrects value of offer in para 2 to US$47 billion

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