It looks as though there’s no summer break in store for Allergan Inc. Chairman and Chief Executive David Pyott, who appears ready to spend the coming months fighting a hostile takeover attempt by Valeant Pharmaceuticals International Inc.
Expect Pyott and the Irvine-based drug maker to fill the summer months with a series of moves to bolster the chances of remaining independent.
Also expect those moves to come at a deliberate pace as Allergan looks to exploit the “benefit of playing the time card”—as a Wall Street analyst put it last week—while Valeant and activist investor Bill Ackman step up their effort on a takeover.
Canada-based Valeant has begun laying plans to take its offer—a combination of cash and stock valued at around $53 billion near the end of last week—directly to Allergan shareholders. Valeant also has set a goal of forcing a special meeting in an effort to oust a majority of Allergan’s board.
Allergan’s strategy “will be to do everything to increase shareholder value” in the meantime, Annabel Samimy, an analyst who follows the company for St. Louis-based Stifel, Nicolaus & Co., wrote in a report issued last week after Allergan rejected the takeover offer from Valeant and Ackman’s Pershing Square Capital Management LP—the third offer from the partners.
Samimy predicted that Allergan’s strategy will include several prongs, among them: maintaining business momentum; building on Allergan’s recent projection of 20% growth in earnings per share on a compounded basis through 2019; developing products from its pipeline, which is expected to get a boost from a Food and Drug Administration approval for its Levadex migraine drug this summer; strategic deals, which include potential acquisitions; and a share buyback program.
“In this regard, we think time is on [Allergan’s side] to realize the ensuing value,” she wrote.
That doesn’t mean Allergan can simply run out the clock, according to David Buck, an analyst with New York-based Buckingham Research Group.
“Allergan does need to be bold to continue as a stand-alone company as some investors may prefer to vote for a [board change] and move towards a takeover by Valeant unless there is a more attractive alternative put out by Allergan,” Buck wrote to clients shortly after Valeant’s latest bid was rejected.
Reuters, Financial Times
He appears up to the challenge and began addressing the takeover attempt at length in the financial press for the first time last week.
The urbane, 16-year veteran of Allergan’s corner office told Reuters that he’s an “endurance player” and is prepared for a long, drawn-out takeover battle.
Valeant and Ackman’s bid “creates significant risks and uncertainties for Allergan’s stockholders and does not reflect the [company’s] financial strength, future revenue and earnings growth or industry-leading R&D,” Pyott said.
He went further with the Financial Times, telling the London-based publication that Valeant has “anaemic growth and their model involves acquiring companies and starving them to death.”
Allergan doesn’t believe the revised bid “reflects Allergan’s growth prospects, nor does it offer sufficient or certain value to warrant discussions between Allergan and Valeant,” Pyott said.
Pyott was not available for further comment last week.
Valeant isn’t backing down—or planning any summer vacation, it seems. The drug maker said in a statement that it is taking its bid directly to Allergan shareholders because of what it called an unwillingness of Pyott and his board to negotiate.
Valeant also cited Allergan’s “inaccurate and misleading statements” as well as unsupported arguments about its acquisition-centric business model as reasons for going directly to shareholders.
Special Meeting
Valeant and Pershing Square detailed their plans to solicit a special meeting in a Securities and Exchange Commission filing earlier this month. The meeting requires the consent of 25% of Allergan’s shareholders.
Pershing Square filed its preliminary proxy to start the process on June 2 and will start mailing the proxy materials today through June 26.
Valeant and Pershing said in their filing that they would solicit the meeting and deliver the required percentage of shareholder support to Allergan in a period running from June 30 to July 24 and contemporaneously “file [the special meeting] proxy with the SEC.”
“We believe the earliest date for shareholders to properly consider the special meeting proxy would be one month after [Allergan] confirms our solicitation: Aug. 7th- Sept. 1st,” Valeant and Pershing said in the filing.
Allergan can delay the meeting up to 120 days, which would put the earliest date up to Nov. 4 to Nov. 28, Valeant added.
Some analysts said Allergan shareholders might begin to warm to the takeover offer as time goes on.
Analysts
Alex Arfaei, who follows Valeant for BMO Nesbitt Burns Inc. in New York, said in a research note that he believes the matter could come down to whether investors trust Valeant’s contention that it could cut $2.7 billion in operating expenses from Allergan.
The Valeant-Pershing Square proposal “sets a high hurdle” for Allergan, noting that a combined company would trade at 10 times projected 2016 earnings, as opposed to 19 times for Allergan as an independent entity, according to Christopher Schott of JP Morgan.
“We believe Allergan has to offer further shareholder value to surpass the fairly high hurdle that the Valeant proposal presents,” Schott said.
