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Filings Cite Twists, Turns on Way to Pyott’s Payout

David Pyott’s big payout from the sale of Allergan Inc. to Actavis PLC came with twists and turns for both companies and two other drugmakers involved in a deal of their own, according to filings made public last week.

Pyott spent nearly 17 years as chief executive of Irvine-based Allergan, guiding the company from a market capitalization of $2.3 billion to the $72.5 billion it fetched from Dublin, Ireland-based Actavis last month.

The combined company is expected to take the Allergan name and operate primarily from Parsippany, N.J., while Irvine is slated to be the center of its specialty drug business.

The sale price puts Allergan at the top of the Business Journal’s list of OC-based publicly traded companies, the centerpiece of this week’s Special Issue (see list, starting on page 10; related coverage, throughout).

Pyott recently converted Allergan stock to about $534 million in cash, according to a Securities and Exchange Commission filing. He traded 3 million stock options for $497 million in cash at the deal’s closing, as well as $36.9 million through trading more than 285,000 shares and restricted shares of stock.

Actavis bought Allergan in a friendly deal after the latter fought a spirited takeover battle against Canada-based Valeant Pharmaceuticals International Inc. and activist investor Bill Ackman’s Pershing Square Capital Management LP.

Allergan had looked for another deal as a way to grow itself to a point where Valeant would not be able to absorb it. Its sights fell at one point on Raleigh, N.C.-based gastrointestinal drugmaker Salix Pharmaceuticals Ltd. during back-and-forth with Valeant, which went on for most of the past year.

A March filing by Salix revealed that Allergan made a $13 billion offer for it that was eventually withdrawn. The deal broke off after Allergan apparently discovered accounting errors during its due diligence review of Salix.

Actavis emerged as a prospective buyer of Allergan a short while later, taking that deal in another direction.

Valeant and Ackman soon threw in the towel on their pursuit of Allergan and went shopping for another target, continuing their roll-up strategy with an eye on Salix.

It turned out that Valeant got some benefit from Allergan’s earlier due diligence on Salix, too—it struck a deal to buy the Raleigh-based company for $11.1 billion, 18% lower than Allergan’s last offer.

Allergan, Actavis and Pyott are not directly referred to in Salix’ filing, but there are references throughout the document that offer enough in the way of descriptions to identify “Company A” as Allergan and “Company B” as Actavis.

The filing shows that Allergan and Salix had been in communication since November 2013. Salix was working on a $2.6 billion acquisition of San Diego-based Santarus Inc. around that time.

Allergan, meanwhile, was looking to invest some of the $3 billion in cash and cash equivalents it had as of the end of 2013—a pile that eventually played a key role in drawing the interest of Valeant.

Pyott requested a meeting with Carolyn Logan, then chief executive of Salix, on the day her company was buying Santarus, according to the filing.

The filing indicates that Pyott made clear Allergan’s interest in buying Salix but was put off until the January 2014 completion of the Santarus deal.

Pyott contacted Logan in March 2014 and “again requested that [Allergan] be given the opportunity to conduct a high level due diligence review of [Salix],” although he didn’t provide specific information regarding any potential offer for Salix.

Salix’ board decided at that time not to provide due diligence to Allergan. Salix was also dealing with a pair of potential third-party acquirers located outside the U.S., one of which was not identified in the filing.

Valeant did not emerge as a potential buyer of Allergan until a month later, when it launched its unsolicited takeover offer.

Salix, in the meantime, started talking with another Ireland-based company, Cosmo Pharmaceuticals SPA, and announced a tax inversion deal in July that was eventually called off.

Continued Interest

Allergan continued to express interest in Salix, according to the filing, and made an initial offer at the end of July valued at $180 a share. Salix’ board said that number was insufficient to initiate discussions but that it would review any improved offer, the filing shows.

The filing also shows that Pyott told Logan in late August that Allergan’s board would increase its offer for Salix to some $13 billion in exchange for three weeks of exclusivity. Allergan then conducted its due diligence review and raised questions about inventory levels of Salix’ drugs.

Allergan told Salix in September that it was “concerned with the levels of inventory” of Salix’ drugs and lowered its proposed price, according to the filing.

Actavis Chief Executive Brent Saunders contacted Logan about a week later to initiate deal discussions, but said in early October that Actavis “would not be proceeding with a transaction” because of possible antitrust concerns.

Allergan and Pyott eventually walked away from Salix in October but said they “may re-approach [Salix] after [its] announcement of third-quarter earnings.”

Salix’ audit committee reviewed the inventory levels and announced the problems during the company’s third-quarter earnings call on Nov. 6—a situation that led to the resignation of its chief financial officer, according to the filing.

Pyott contacted Logan on Nov. 13 to see if Salix would be interested in re-engaging with Allergan and meeting on Nov. 20.

Four days later, “[Allergan] and [Actavis] announced that they had entered into a definitive agreement pursuant to which [Actavis] would acquire [Allergan].”

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