Analyst: Bill Ackman's Zoetis Move Casts Doubt On Allergan Bid

Allergan, Inc.'s (NYSE: AGN) acquisition by Valeant Pharmaceuticals Intl Inc (NYSE: VRX) is looking less likely, in light of a recent move by activist investor Bill Ackman, an analyst said Wednesday.

Ackman made a "concession of defeat" in efforts to engineer an Allergan takeover by Valeant by acquiring a 9.2 percent stake in veterinary drug maker Zoetis Inc (NYSE: ZTS), according to Citi's Liav Abraham.

Ackerman's stake, in concert with Scott Ferguson's Sachem Head Capital Management LP, was disclosed Wednesday in separate filings.

Should its Allergan bid fail, Valeant could pivot to a bid on Zoetis, according to Abraham, who called Zoetis "the type of asset that Ackman and Valeant are interested in."

Similar to Allergan, Zoetis offers "market leading" products and limited risk from patent expirations, according to Abraham.

Valeant and Ackman's Pershing Square have a $179 per share bid on the table for Allergan. But Allergan, which disclosed merger talks with a third party earlier this month, has called the Valeant bid "grossly inadequate." A shareholder vote on the Valeant bid is expected at Allergan's December 18 annual meeting.

Bloomberg said Wednesday that Allergan and Activis are negotiating a merger, with Activis offering $200 per share, and Allergan holding out for $210.

Abraham said Valeant has stated a potential interest in assets in the animal health area in the past.

Abraham, who raised his Zoetis target to $49, estimated that its sale would add $11 per share in value through cost cutting and tax savings.

Morgan Stanley's Daniel Risinger upgraded Zoetis to Equal-Weight from Underweight on Ackman's move.

But Risinger said Zoetis 20 percent share of its market "could raise antitrust issues" in a potential sale.

Ackman said he will hold talks with Zoetis regarding its management, as well as strategic plans and board composition.