Canadian drug maker Valeant Pharmaceuticals International Inc. suggested it is set to hike its unsolicited offer to buy Botox-maker Allergan Inc. to at least $200 a share, up from roughly $180.50 a share it currently is offering, according to a letter that came in one day before a key court hearing. "To be clear, Valeant is prepared to improve its offer and provide value to your shareholders of at least $200 a share," the drug company said in a letter to Allergan's board. "We are confident that an increase in our stock price, and in consideration, will provide that value." Valeant was quick to respond noting that if Valeant were to make a raised offer its board would "carefully consider it." However, the drug company also reiterated that Valeant's offers have been "grossly inadequate and significantly undervalue Allergan." The letter and response comes as activist investor Pershing Square Capital Management LP, which owns most of a 9.7% Allergan stake, has been working with Valeant on its hostile bid and a related proxy fight. It also arrived one day before oral arguments are set to begin in U.S. District Court in California over a lawsuit filed by Allergan seeking a preliminary injunction to prevent Valeant and Pershing Square from voting their Allergan stake at a December special meeting the company set up in response to demands from the activist hedge fund. Allergan argues that Valeant and Pershing violated securities laws in preparing their hostile bid and shouldn't be allowed to vote their shares. A person familiar with the lawsuit noted that the hearing before Judge David O. Carter will likely take roughly four hours, with a possible decision as soon as the same day or by Oct. 29. "The judge is traveling on Oct. 30 so he likely will want to decide on the preliminary injunction before then," this person noted. Whether Pershing gets to vote its near-10% stake at the meeting is critical because the vote could determine if Valeant succeeds in its hostile efforts. The special meeting, set for Dec. 18, seeks to give shareholders of record as of Oct. 30 a chance to vote on removing six of nine incumbent Allergan directors and on a proposal that Allergan negotiate with Valeant in good faith regarding its takeover bid. And while Pershing or Valeant would still have to go through a subsequent court battle to get their alternative director slate on the board, a substantial vote for removing incumbents would send a loud message that investors want the Valeant-Allergan deal to go forward. It is unclear how many votes the takeover partners could count on were Pershing not allowed to participate. "Dec. 18 is not that far away," Valeant's CEO Michael Pearson said in the letter. Valeant's current tender offer for Allergan, worth about $180.50 in cash and Valeant shares, or roughly $50 billion, expires Dec. 31. Over the weekend, there were further developments in the California case. Late Friday, Valeant amended their counterclaims alleging that "Allergan disseminated intentionally false and misleading statements in a deliberate campaign to manipulate Valeant's share price downward." Allergan filed its response late Sunday, arguing that Valeant's counterclaims are a "collection of distortions and half-truths designed to level personal attacks on the leader of an acquisition target." A tentative preliminary hearing date are set for a Nov. 17 court date. Both Allergan and Valeant pointed to recent positive earnings results to defend their positions, with Allergan reporting their third quarter results Monday. "We believe Valeant's letter today is simply a tactic to distract investors from Allergan's outstanding third quarter results," Allergan said in a statement. Allergan reported a third quarter profit of $312.5 million, up from $300 million in the same period a year ago. Valeant, in its letter, pointed to its own better than expected third quarter earnings as part of an effort to refute assertions by Allergan that it has a flawed business model. The court case and proxy fight are underway as reports speculate that Allergan could seek to make a major acquisition as part of an effort to avoid Valeant's takeover bid. Pershing's Bill Ackman last month threatened to hit Allergan with a lawsuit if it undertakes an acquisition without giving shareholders a vote on the Valeant offer. "It will be a breach of fiduciary duty," Ackman said.
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