A new bidder has brought a decidedly different tone to talks on a takeover of Irvine-based Allergan Inc.
“I think we have always viewed ourselves as a team that does friendly deals—I think that’s particularly important when you’re buying businesses where people matter,” said Brent Saunders, chief executive of Actavis PLC, which emerged last week as a candidate to buy the maker of Botox.
“And so I think we’ve always viewed that our deals are about value creation,” he said. “And when people matter, we’re not going to do a deal that would be value destroyed.”
Saunders’ take on takeovers came shortly before last week’s confirmation that Actavis was in advanced talks with Allergan as a “white knight” suitor.
Some observers said a deal could be done this month.
Valeant, Ackman
Allergan is looking to block the advances of hostile suitors Valeant Pharmaceuticals International Inc. and activist investor Bill Ackman’s Pershing Square Capital Management LP.
Valeant and Ackman have pursued Allergan for nearly seven months, laying out plans to make deep cuts in jobs and research and development programs if they get the company.
Reports indicated that Actavis and Allergan were about $3 billion apart in terms of a potential price—Actavis was said to be offering some $60 billion, or $200 a share, while Allergan’s board of directors was seeking $63 billion, or $210 a share.
Valeant and Pershing’s current stock-and-cash bid for Allergan was worth some $54.5 billion last week, while Allergan’s market value was around $58.4 billion. Ackman recently mentioned a willingness to start negotiations at around $60 billion if Allergan would engage the would-be raiders—a suggestion that seems to have been pre-empted by Actavis.
A special shareholders’ meeting is set for Dec. 18. Valeant and Pershing want investors to remove a majority of Allergan’s board—a move intended to bring the company to the negotiating table.
Allergan Chairman and Chief Executive David Pyott might have a deal with Actavis to present to shareholders by then.
Actavis, which has annual sales of $8 billion and a recent market value of $64 billion, burst back onto Allergan’s potential white-knight stage after earlier reports suggested that talks between the companies went dormant.
Actavis boss Saunders is a former chief executive of diversified eye health company Bausch & Lomb Inc., which Valeant bought last year. He traveled extensively to OC while he was temporarily overseeing Bausch’s Aliso Viejo-based surgical arm.
Saunders spent time during an earnings call earlier this month talking about the effects of hostile bids when it comes to integrating acquisitions.
“Integrations in and of themselves tend to fail more than half the time,” he said. “And I think when you do one in a hostile environment, they tend to fail almost all the time. People have been trained to hate each other for months and perhaps years during a hostile fight. The rhetoric is ramped up, and a lot of value can be destroyed in losing key talent and key relationships.”
Some Allergan watchers like the potential for a friendly combination with Actavis.
“We continue to see a deal between Allergan and Actavis as a probable outcome for the Actavis, Allergan and Valeant saga given our higher than consensus estimates of synergy capture and belief there is inherently more value in a ‘friendly deal,’ ” Shibani Malhotra, an analyst with Birmingham, Ala.-based Sterne Agee & Co., said in a research note issued after news of the Actavis talks broke.
“As it is, Actavis’ offer would likely win,” Aaron Gal, who follows Allergan for New York-based Bernstein Research, said in a client report.
Gal wrote that he expects negotiations between Actavis and Allergan will likely conclude by early December—something that would allow Allergan time to lobby shareholders before the special meeting.
“If the December 18th vote is between (the) Actavis-Allergan offer and the Valeant offer, then the Valeant offer would have to be substantially higher than Actavis’ to win,” he wrote.
‘Unique Window’
Saunders later shared his thoughts on the merger-and-acquisition frenzy that’s cropped up in the drug sector.
“I do think it’s a bit of a unique window. I think given the need for consolidation and what’s happening in our industry, coupled with a low interest rate environment and relatively available capital, companies that aren’t investing for long-term value creation and long-term growth are missing an opportunity,” he said.
He continued: “And I think you’ve got to distinguish that [from] just going out and buying stuff. There are a lot of people who are looking at low-growth or declining assets, and they’re not going to create value over the long term. They may create accretion in the short term, but they’re not going to [create] great value over the long term.”
Saunders contended that companies and executives that used their money to buy shares and pay dividends during the window “have not deployed [their] capital wisely.”
Zoetis
Ackman and Valeant might have found an alternative to a deal for Allergan last week. Ackman’s Pershing Square acquired an 8.5% stake last week in Florham Park, N.J.-based Zoetis Inc., an animal health company that spun off from New York-based Pfizer Inc. in 2013.
The move left some observers wondering if it might be an attempt to gain some leverage in the minds of Allergan shareholders.
“We have received an influx of investor questions regarding the potential implications for Pershing’s co-bid for Allergan with Valeant,” analyst Malhotra wrote in her note.
She said she did not see Pershing’s investment in Zoetis as a sign of Valeant capitulating on Allergan.
“… We believe this was a move by Pershing Square to remind investors that Valeant does have other options which theoretically could drive up the value of [its] shares thereby increasing the price paid to [Allergan] shareholders.
“Given the high equity component of Valeant’s offer, share price appreciation is integral to the company being able to make a fair and full offer for Allergan,” Malhotra wrote.
Citigroup analyst Liav Abraham had a different take:
“We assume that Pershing is interested in advocating for a sale of [Zoetis], potentially to Valeant if its bid for Allergan falls through,” Abraham said in a research report published last week.
