US drugmaker Allergan today rejected Valeant Pharmaceuticals International's $47 billion takeover offer, saying its proposed cost cuts were too steep.

Allergan, which makes the popular anti-wrinkle treatment Botox, said it believed Valeant's business model was unsustainable and that the offer was too risky because of uncertainty about the company's long-term growth.

"Valeant's model of cutting and slashing really doesn't work for more than a very short period of time," Allergan chief executive David Pyott said during a conference call with investors to explain the rejection.

He said Valeant’s plan for billions of dollars in cost cuts would prevent Allergan from delivering growth that it could produce on its own, and he set a target of a 20 per cent to 25 per cent increase in earnings per share in 2015.

Valeant and activist investor Bill Ackman, who has a stake of almost 10 per cent in Allergan, made an unsolicited cash and stock offer for the company in April.

The next step in the Allergan-Valeant battle for control is for Valeant to raise its cash and stock offer and to present the offer to shareholders, analysts said today.

"They're going to have to take this directly to shareholders and frankly this looks like a big media battle," said David Amsellem, an analyst at Piper Jaffray who covers both companies. "I think that Valeant really, really needs Allergan."

Allergan and Valeant have both said that they are currently meeting with large shareholders. In April, Valeant said that, excluding Ackman’s stake, about 56 per cent of Allergan shareholders were also Valeant shareholders.

Valeant said last week that it is planning to organise Allergan shareholders to call a special meeting to push out Allergan’s board of directors. It also said it may call a referendum to see if shareholders support Allergan-Valeant negotiations. It is unclear how that would work.

In a regulatory filing today, Mr Ackman’s hedge fund Pershing Square Capital Management said that it has requested a complete list of holders of record in Allergan to be able to “communicate with fellow stockholders of the company”. The Vanguard Group, State Street Global Advisors and BlackRock rank among Allergan’s 10 largest investors, according to data from Thomson Reuters.

Valeant spokeswoman Laurie Little said the company was disappointed that Allergan had rejected the offer and that it remained committed to the transaction.

Allergan had said it was considering the offer, but within days, it adopted a so-called poison pill provision to slow a takeover. If Mr Ackman's Pershing Capital raises its stake beyond the 10 per cent threshold, other investors could buy discounted shares.

Allergan has also been seeking other buyers such as Shire, according to sources familiar with the matter.

Mr Pyott said during the call that external moves were options, “but it would be totally premature to discuss them”.

He also said he was watching the national debate about companies that move their tax bases outside the United States and that he expected changes to US tax rules.

Quebec-based Valeant has acquired roughly a half-dozen companies in the last two years and has set its sights on becoming one of the world’s five biggest drug companies.

Valeant bought contact lens maker Bausch & Lomb for $8.7 billion last year, shortly after acquiring Medicis Pharmaceuticals for $2.6 billion in 2012. Valeant has grown by cutting spending and buying companies or proven products that will boost earnings. The company also domiciles assets in overseas tax havens.

Valeant said in announcing its April 22 bid for Allergan that it expected at least $2.7 billion in annual cost cuts. Valeant said last week that Allergan spent too much on research and development and that its selling, general and administrative expenses were excessive.

Allergan said today that it expects double-digit sales increases and annual compound growth in earnings per share of 20 per cent over the next five years, helped by recent and expected drug approvals.

Valeant shares have risen 4 per cent since announcing the offer, while Allergan shares have gained nearly 14 per cent. In afternoon New York Stock Exchange trading, Allergan fell 1 per cent to $159.55, while Valeant was off 1.3 per cent at $129.42. – Reuters