Allergan Inc. (NYSE: AGN) has been a great company, with leadership positions, and it can still be a great company in the future. The question is whether this greatness will be as an independent company or as a subsidiary of a company like Valeant Pharmaceuticals International Inc. (NYSE: VRX). With Allergan formally rejecting the Valeant buyout offer, there is a legitimate concern here — how worried should Allergan investors be?

Allergan has formally rejected the Valeant buyout offer. Before you get too worried, consider that Allergan hit a high of $170 after the deal was announced. So a drop to less than $160 might not be the end of the world.

What may be of some concern is not just the rejection. Allegan did say that the buyout proposal substantially undervalues Allergan and is not in the best interests of shareholders. This is management lingo for “we want more.” Where the story will get confusing, and which makes the proposal not just about the price, is at the end of Allergan’s formal rejection. The company said:

Furthermore, the Board has determined that Valeant’s proposal creates significant risks and uncertainties for Allergan’s stockholders and believes that the Valeant business model is not sustainable.

Now Allergan is talking up its go-it-alone prospects. The company’s 2014 guidance was to increase earnings per share by 20% to 25% in 2015 and 20% to 25% in 2015, and to see a compounded annual growth rate of 20% over the next five years.

At the end of March, Allergan shares were closer to $120. Then the value popped to $140, $160 and then $170. Thomson Reuters shows a consensus price target of about $175, but that is after the dust has settled from the merger offer from Valeant. At least one analyst has a $200 price target.

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So, here is where the value rub comes into play. Even if you use fiscal 2015 estimates, at $160 Allergan trades at a steep 24 times earnings. That is more than 30 times next year’s earnings at a $200 price, and is only 18 times next year’s earnings at $120 per share. When you consider how valuations are for pharma and biotech right now, Allergan trades at a premium even at the $120 baseline.

Yes, it is still growing. And yes, there is the entire logic behind the tax merger incentive. We would not have much concern if the company’s response was that Valeant just is undervaluing the company. But the statement that this merger “creates significant risks and uncertainties for the stockholders” of Allergan is of concern.

Allergan shares were down 1.2% at $159.25, and Valeant shares were down 0.5% at $129.50, in early afternoon trading Monday. This story is not one that will soon be over, but it is taking a turn — perhaps not for the best.

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