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Cephalon shareholders should have final say: Valeant

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Shares of drugmaker Cephalon Inc. (CEPH-Q) surged on Wednesday, hitting a higher level than the $5.7 billion unsolicited buyout offer from Valeant Pharmaceuticals International Inc. (VRX.T), in a sign investors expect a higher bid.

On Tuesday, Valeant made public a $73 US per share bid to buy Cephalon and said it would take the offer directly to the target's shareholders. Cephalon's shares were trading at $76 before the market opened on Wednesday. The company said it would respond to Valeant's proposal next week.

Analysts said the deal would provide a major boost to Valeant, which specializes in branded generics, dermatology and neurology treatments. U.S.-listed shares in the company rose 17 percent premarket.

"While very early stage, we would not be surprised to see very significant cost synergies of more than $500 million were this transaction to occur," J.P. Morgan Securities analyst Chris Schott said in a note to clients.

Valeant has said if it did not win over Cephalon's stockholders, it would look at other ways to invest its capital.

Jefferies analyst Corey Davis said Valeant's move on Cephalon was a major surprise, adding that Cephalon shareholders were not likely to get a better deal elsewhere.

"We are hard pressed to recommend not taking the deal since we had trouble seeing how the stock could get that high in the near future," he wrote in a note.

"It is difficult for us to envision any company willing to be as aggressive as Valeant in cutting the costs and hence any would-be white knight would need to place tremendous value on the pipeline," Davis wrote in a research report.

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