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Valeant blinks and withdraws Ista bid

by Ben Fidler | Published January 30, 2012 at 12:04 PM

Valeant Pharmaceuticals International Inc. is done staring down Ista Pharmaceuticals Inc.

The Mississauga, Ontario-based company has pulled its unsolicited $7.50 per share, $327 million offer for Ista, the third-largest branded eye-care pharmaceutical company in the U.S. Valeant's bid was to remain open until Tuesday but the suitor yanked its once-sweetened offer a day prior to the deadline due to a "lack of progress" in deal talks.

"As we stated last December, we were not interested in participating in a lengthy evaluation process and we are disappointed that the Ista team was not willing to fully explore our proposal by January 31," Valeant chairman and CEO J. Michael Pearson said in a statement.

Pearson added that Valeant will continue to be "disciplined" in its M&A strategy and is "actively working on other opportunities."

"We wish the Ista team well in their future endeavors," he said.

Ista immediately responded Monday morning by asserting that it will continue its strategic review and is still in talks with a number of other parties that have expressed interest in a deal. Ista president and CEO Vicente Anido Jr. also indicated that his company refused to be pressured by Valeant.

"We repeatedly offered Valeant the opportunity to participate in our strategic review process on a level playing field with others, but it was clear Valeant was only interested in an approach that would have effectively excluded others," Anido said in a statement. "We informed Valeant that there were simply too many other companies that had indicated strong interest in Ista for us to take that approach."

Valeant first approached Ista regarding a buyout in October and announced its interest in the company on Dec. 16, when it went public with a $6.50 per share in cash, or $327 million (including net debt), unsolicited bid for the producer of prescription eye care drugs.

The revelation came just two days after Ista balked at Valeant's bid. In taking the offer public, Valeant also released letters regarding the deal talks, with Pearson noting at the time that "stockholders should not be denied the opportunity to determine for themselves whether their board and management should engage with Valeant in a meaningful and productive dialogue regarding our proposal."

Ista has maintained from the start that it was being lowballed by Valeant. Even though the initial purchase price represented a 67% premium over Ista's per share closing price on Dec. 15 and a 68% premium over Ista's 60-day volume weighted trading average of $3.87, Ista said its business has turned a corner and is poised for substantial growth.

Outlining its 2012 guidance on Jan. 4, Ista projected it will boost its revenue by close to $30 million over the next year and may almost double its 2011 revenue by 2013, when it estimates it will post $300 million in sales.

Anido also told The Daily Deal in early January that the bid didn't measure up to present multiples for ophthalmic acquisitions. A $327 million bid, for example, represented roughly 2 times Ista's roughly $160 million in 2011 revenue, whereas Merck & Co. paid about 4 times revenue for another ophthalmic drugmaker, Inspire Pharmaceuticals Inc., in mid-2011. Merck paid $430 million for Inspire. The target had about $106.3 million in 2010 sales.

Valeant sweetened its bid for Ista on Jan. 17, offering $7.50 per share in cash while setting a target price of $8.50 per share in cash, subject to one week of due diligence. Ista indicated at the time that it was going to review the offer but was in talks with a number of other suitors.

Ista's stock climbed as high as $8.22 per share the day Valeant raised its bid. The stock traded at $7.90 per share early Monday.

Irvine, Calif.-based Ista has four products for sale in the U.S. and Puerto Rico. It sells Bepreve (drops for itchy eyes caused by allergies), Istalol (a glaucoma treatment), Bromday (a postoperative inflammation and pain reliever for patients who have undergone cataract extractions) and Vitrase (a drug that helps absorption of other drugs). The company also expects to have a few more items on the market over the next couple of years -- among them a dry-eye product that will mark an entry into the over-the-counter space and a new formulation for Bromday called Prolensa that has patent protection through 2024.

Stradling Yocca Carlson & Rauth PC and Wilmer Cutler Pickering Hale and Dorr LLP are Ista's legal advisers. Rich Jacobsen and Ashish Contractor of Greenhill & Co. are Ista's financial advisers. Jeffrey Buckalew of Greenhill, who died in a December plane crash, was also working on the transaction.

Marie Gibson and Stephen Arcano of Skadden, Arps, Slate Meagher & Flom LLP are providing Valeant with legal advice. Morgan Stanley is its financial adviser.

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Valeant blinks and withdraws Ista bid

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Ben Fidler

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