Allergan (AGN) stock spiked recently on speculation that GlaxoSmithKline (GSK) would acquire the specialty pharmaceuticals company. I’ve thought for a long time that GSK would make a play for AGN. Allergan’s valuation is significantly lower than before given the current market conditions. Ophthalmology assets have been very popular, e.g. Alcon and AMO acquisitions. The companies already have a strategic partnership. Assuming that GSK has even made an offer for AGN, the big question is price – AGN CEO, David Pyott, has always maintained that he’s not interested in selling the company, but everyone has a price. Price will greatly depend on whether GSK believes Botox for migraine will receive FDA approval. Botox would be a great addition to GSK’s migraine franchise. Botox for overactive bladder, if it gets approved, would benefit GSK’s urology franchise. If GSK believes that the economy will recover soon and that AGN’s aesthetic business will eventually rebound, the timing may be right for an acquisition. I could be wrong, but I don’t believe there are any other potential suitors for AGN, so I don’t think there will be any competitive bids. J&J already bought Mentor, Novartis acquired Alcon, Abbott purchased AMO, and Pfizer is busy with Wyeth. Again, it all comes down to price. Wachovia analyst, Larry Biegelsen, thinks that Allergan shares are worth $60 or more. I wonder if AGN’s board thinks the same; they could easily reject GSK’s offer if it’s not high enough.
Disclaimer: I own Allergan stock; I have owned the stock for a number of years. Investment decisions based on potential acquisitions are highly speculative and risky. There is absolutely no evidence that GSK has made an offer to acquire AGN.