Cary Hyden used to think a marathon covered 26 miles, 270 yards.
Then came the eight-month Allergan Inc. saga, when he learned they can be much longer.
Not that the distance marathon runners traditionally cover couldn’t be a warm-up for a corporate takeover battle.
Hyden had just crossed the finish line for the 2014 Boston Marathon when Bill Ackman announced plans to acquire Irvine-based Allergan. The Latham & Watkins LLP partner finished the marathon that April afternoon and in his sweaty mess told his cheering 21-year-old son Michael that he would head back to the hotel, take a shower, recuperate with a quick nap, then set out for “the best dinner in all of Boston with the nicest bottle of wine we can find.”
That never happened.
Hyden returned to the Copley Square Hotel to find his BlackBerry “blowing up” with emails and notifications about a hostile takeover bid targeting longtime Latham & Watkins client Allergan. Valeant Pharmaceuticals International Inc. had teamed up with Ackman’s Pershing Square Capital Management to launch a bid for the Irvine-based drugmaker.
That was the beginning of the real distance run as Allergan fought off Valeant and Pershing Square’s advances and kept a constant vigil in place while figuring out ways to go on offense. The emergence of white knight buyer Actavis PLC marked the end of the saga. Allergan recently made the $68 billion deal official with a merger proxy prospectus filed with the Securities and Exchange Commission.
Hyden, partner at the Costa Mesa office of Latham & Watkins, says the Allergan ordeal “has been the most rewarding professional matter that I’ve been involved in, [while] it was also the most challenging, demanding, stressful, around-the-clock matter that I’ve been part of.”
He tells the Allergan story from the law firm’s perspective, circling back to April 21 when he learned of the unsolicited bid.
That afternoon in his hotel room, Hyden “re-read the email the second and third time” and reached out to his team at Latham & Watkins, as well as to Allergan Chief Executive David Pyott and General Counsel Arnold Pinkston.
“We spent the next nine hours on the phone to prepare ourselves for the takeover bid,” Hyden said. “All the while, I was sitting there in my sweaty running shorts. No nap and no shower. No big dinner with the best wine.”
A board meeting followed the next morning, after which Allergan announced the company had adopted a shareholders rights plan that kept the stock anyone can own capped at 10%. Pershing Square at the time had accumulated a 9.7% stake in Allergan stock.
“It basically stopped the bleeding,” Hyden said.
Plans in Place
It helped that plans to face a potential hostile takeover bid had already been in place and had been refreshed as recently as February.
“We had put in a plan several years ago, which involves a script and sort of the first 25 things you do in the event that someone blindsides you with this kind of hostile takeover,” Hyden said. “We had just refreshed this. It doesn’t mean it was a piece of cake, but we were very well prepared. We had determined in advance who our team would be.”
The core group included representatives from Latham & Watkins, Goldman Sachs, Bank of America and New York-based corporate communications firm Joele Frank.
“We had the top folks of each of these groups, the case being one of the most high-profile hostile takeovers arguably in the decade,” Hyden said. “I had also gone to the board and put a poison pill on the shelf. [That] informs the board in advance of what the pill would do so the board is not asked to adopt something they’ve just been informed about. That made the [April 22] board meeting more efficient and productive.”
Hyden extended his stay in Boston—he was worried about being out of touch for as long as a cross-country flight back to OC—until he caught a red-eye on April 25. The core group continued meetings throughout the weekend.
The value of Valeant’s bid for Allergan at the time was about $48 billion based on an offer of $48.30 and 0.83 shares of its own stock for each Allergan share.
Long-Term Relationship
Latham & Watkins has had a relationship with Allergan since 2001, when Hyden led the spinoff of its ophthalmic surgical and contact lens business into an independent company. The unit was renamed Advanced Medical Optics Inc. and was later sold to Abbott Laboratories Inc.
“That spinoff, which was my first corporate transaction for Allergan, was a very intense project,” he said. “You’re taking certain assets, contracts, intellectual property, everything involved with what were divisions of a company, spinning it out as [an independent] company … We had to go in with a scalpel, take out assets and contingent liability from 47 different subsidiaries around the world. What that meant was I got to know the entire executive management team and their entire legal team at a very broad, deep basis. So over 14 years, we’ve built up trust and confidence.”
The relationship between the firm and client grew as the hostile takeover attempt played out. Hyden worked with a number of other Latham & Watkins partners in various offices, including Paul Tosetti in the Los Angeles office, Peter Wald in San Francisco, and Michael Treska and Michele Johnson in Orange County.
Allergan on May 10 told its shareholders that the company believed Valeant’s initial proposal was insufficient. Valeant increased the cash portion of its bid on May 28 to an overall value of about $49 billion. It once again outbid itself two days later, bringing the total offer to nearly $54 billion.
Defense Strategy
An early defense strategy of Allergan was to make sure “we shine a bright light on Valeant,” Hyden said. “We believed their stock price was overstated. It was important … to make sure the stockholders fully understood the risk of Valeant’s roll-up business model. There had been very opaque financial statements. It’s difficult to understand how well they were doing. … We thought it was important that the shareholders have a full understanding of the company’s true value, so we raised questions.”
Hyden’s team “peppered” the SEC with letters raising issues about Valeant’s filings, particularly its proposal for a shareholder referendum. The team sent the SEC more than 30 “bedbug letters,” which serve as “a sign to make sure that the information that’s sent to our stockholders is accurate, but it has the impact of really slowing down the process. You’re throwing sand in the gears. That’s something that both sides do.”
‘Time is Everything’
The moves helped buy time for Allergan.
“Time is everything when you’re fighting a hostile takeover,” Hyden said. “You’re trying to get your client enough time to meet its business objectives shown to the marketplace, and be able to show that Allergan is able to provide stockholders with this kind of long-term value. When we have multiple months to make that presentation, we are more likely to succeed.”
Meanwhile, Allergan in July reported strong second-quarter results, plans for cost cuts, and upgraded guidance on future earnings.
The company in August filed a lawsuit in the U.S. District Court for the Central District of California in Santa Ana, claiming that Valeant and Ackman had conspired to commit insider trading. The litigation is ongoing.
Enter Actavis
Allergan all the while continued to explore other acquisition options, whether as a buyer or seller, including with Actavis.
“There were discussions that went back as far as July 30 between the CEO of Actavis [Brent Saunders] and the CEO of Allergan,” Hyden said, adding that Actavis’ initial offer to buy Allergan was at $175 a share, which Allergan’s board called insufficient.
“The parties concluded the last week in August that they were going to end discussions based on pricing being inadequate to Allergan,” Hyden said.
Conversation Resumes
The conversation resumed on Oct. 6, when Saunders called Pyott.
“He said they could offer a 5% to 15% increase from the $175,” Hyden recalled. “That was a $185 to $200 proposal. At that point, the CEO of Allergan told Mr. Saunders that would not likely be sufficient. He would take it to the board, but he believes it would need to be north of $200.”
Saunders proposed a range of $195 to $205 two days later. That again was viewed as inadequate, Hyden said.
On Oct. 14, Saunders said he could raise the lower end of the range so that it would cover between $200 and $205. “That wasn’t going to do it, either,” Hyden said.
Actavis upped its bid on Oct. 22 to $210 a share and again on Oct. 21 to a range of $210 to $215.
“That was viewed as sufficient to start the process of due diligence but with a clear message that they would need to raise it to $215 to really make it to a discussion,” Hyden said. “Our view was, ‘That’s good enough to do due diligence, but you need to understand you’ll need to be north of $215. We’ll give you sufficient diligence to show you that we’re worth more than that.’”
Allergan and Actavis entered into a confidentiality agreement on Nov. 5.
Negotiations
The few days following the agreement were centered on negotiating.
“Suffice it to say, sleep was at a premium,” Hyden said. “I went through a period of four days in which I had a total of six hours of sleep. We were just so committed to getting the deal negotiated and announced before the risk of leaks and/or any other problems that could arise. So we just put sleep aside for a while. I didn’t sleep at all the last two nights, just pushing through the negotiations. The entire board met in New York in our offices to consider and ultimately approve the transaction on the evening of November 16.”
Allergan went public with the announcement that it will be sold to Actavis for $129.22 in cash and 0.3683 of Actavis shares per each Allergan share. The deal at the time of the announcement was worth $66 billion.
Actavis’ acquisition led Valeant and Pershing Square to throw in the towel. The raiders had been trying to call a shareholders meeting to remove six of nine Allergan directors in hopes of replacing them with their own nominations. The meeting had been set for Dec. 18.
“This was a huge victory for Allergan stockholders,” Hyden said. “Keep in mind when this proposal first surfaced, the offer was some $45 billion. Through the company’s efforts, through the advisers’ efforts, we ended up with a result for the stockholders of nearly $70 billion.”
Hyden said the Allergan and Actavis deal is subject to stockholder approval, which is expected to be completed in April or May.
And he’s back to a “normal busy” schedule, which affords more hours for sleep.
And that bottle of wine.
