Irvine-based Allergan Inc.’s long-running battle to stay independent marches on as hostile pursuer rhetoric heats up and many analysts express doubt about the deal going through.
Allergan has spent nearly six months fighting off an unsolicited takeover bid from Canada-based Valeant Pharmaceuticals International Inc. and activist investor Bill Ackman’s Pershing Square Capital Management LP.
Valeant and Ackman’s cash-and-stock offer for Allergan was valued at $50.7 billion late last week, compared to Allergan’s market value of $52.2 billion.
Offer
Valeant has said it would increase its offer by $15 a share after reports this month that Allergan could entertain a friendly takeover offer from New Jersey-based drugmaker Actavis PLC, which has Orange County ties.
Valeant, however, hasn’t yet explained exactly how it would boost its offer for Allergan, saying details were being worked out.
That hasn’t deterred Ackman, who told Bloomberg last week that he was confident Allergan shareholders would vote at a Dec. 18 special meeting to oust six of Allergan’s directors and replace them with ones more amenable to a takeover.
“I think a new board will likely be installed at that date,” Ackman said.
He also said he thought it was highly unlikely that he would fail to vote his 10% stake in Allergan, which has gone to court in order to stop him from voting at the special meeting.
Ackman also said late last week that his lawyers have documents purported to show that Allergan’s board misled investors about Valeant. Reuters, however, said it couldn’t independently verify his claim.
A veteran company watcher believes Allergan will hold serve.
“To us, there seems to be a growing belief that [Allergan] will be successful in its defense in the hostile bid and will survive the December 18 special meeting without a change in the board,” specialty drug analyst David Maris of BMO Capital Markets said last week.
Ranking
Maris, to bolster his point, mentioned Allergan’s announcement that Chief Executive David Pyott came in at No. 4 on the Harvard Business Review’s ranking of top chief executives for delivering shareholder value, with a 1,948% return since taking the helm in 1998 (see related story on page 20).
“We believe that it is difficult for investors to vote out a board and management team that has delivered so much value over a long period of time,” Maris said.
Maris made his observations in a research note that mentioned “significant pressure” stock-wise on the specialty pharmaceutical sector last week―primarily after North Chicago, Ill.-based AbbVie Inc. called off its proposed $55 billion deal for Ireland-based Shire PLC—a rumored previous Allergan target—last week.
Tax Inversions
AbbVie directors recommended that shareholders vote against the Shire acquisition because of new U.S. Treasury tax proposals designed to make it more difficult for American companies to shift their tax bases out of the country and into lower-cost areas, such as Europe.
Tax inversions have come under fire by politicians in recent months due to concerns they drain tax revenue out of the U.S.
Pyott, meanwhile, is continuing to make his case against Valeant’s takeover bid with others on Wall Street, including analyst Seamus Fernandez of Boston-based Leerink Swann LLC.
“Regarding capital allocation and M&A options, we agree with Mr. Pyott that [Valeant and Pershing Square’s] current offer, which currently implies a $172-$173 takeout value is inadequate given Allergan’s current execution and growth,” Fernandez said in an Oct. 10 research report written after a visit with Pyott.
Fernandez didn’t speculate on whether Valeant could raise its bid but said he believed fair value for Allergan was at least $215 a share, or 25 times Allergan’s projected $2.5 billion full-year 2015 profit.
One of Allergan’s key arguments against the proposed takeover has been its executives’ contention that Valeant’s business model is incompatible with Allergan’s operational priorities, something one analyst argued has seen little light in the financial community.
“Lastly, it is rather surprising to us there has been so little primary research done on the ability of Valeant to operate the Allergan business using its business model,” Aaron Gal, an analyst who follows Allergan for Bernstein Research, said in a report issued last week.
“This should rationally be the core of the analysis of the deal,” Gal said.
Allergan management has hammered Valeant on what it says is the latter’s lack of emphasis on research and development.
