A team of specialists will continue Allergan Inc.’s battle for the minds and wallets of shareholders this week, when Valeant Pharmaceuticals International Inc. is expected to hike its $47 billion hostile bid for the Irvine-based drug maker.
Allergan rejected Valeant’s original bid two weeks ago, saying the offer undervalued the company.
Canada-based Valeant and backer Bill Ackman—whose Pershing Square Capital Management LP holds just less than 10% of Allergan’s shares—plan to give details of the sweetened offer in a public webcast this week. The webcast will kick off a May 28 meeting Valeant will stage for its own shareholders and Allergan’s in New York.
Expect a flurry of public relations counterpunches.
“You can be assured that the Allergan [board] and the small team of Allergan employees who are dedicated to dealing with Valeant and Pershing Square will be ready,” Allergan Chairman and Chief Executive David Pyott said in an internal memo that was included in a Securities and Exchange Commission filing made public last week.
Pyott’s strategy has gone beyond reacting to Valeant Chief Executive Michael Pearson and Ackman, both of whom have made regular rounds with national media since the bid for Allergan became public last month.
Pyott has kept out of the press, but his memo revealed that he and Allergan Chief Financial Officer Jeffrey Edwards have taken a selective approach with the company’s bid to fend off Valeant.
“Extremely Productive” Meetings
The two “have traveled all over the United States to meet with many of our stock analysts and especially, most of our largest stockholders,” according to the memo from Pyott.
Pyott called the meetings “extremely productive” and noted that the drug maker presented its “enhanced growth plan” to a number of investors. Allergan is predicting double-digit sales growth and compound annual growth of earnings per share of 20% for the coming years up to 2019.
The drug maker also expects to generate about $14 billion in free cash over the period, according to Pyott.
“Given our long-term track record of delivering on our objectives, we have credibility with most investors, and they responded favorably to our plan,” Pyott said.
Investors told Pyott, Edwards and the Allergan team “that they would like to see us harnessing this financial strength to create even more stockholder value by, among other suggestions, either purchasing growth-oriented companies or technologies that fit our strategy and operating model, and/or buying back Allergan stock.”
Pyott’s memo also had some hard ball for Valeant, contending that most of Allergan’s larger shareholders agreed with management’s opinion that “Valeant’s business model with low organic sales growth, serial acquisitions and cutting of R&D, sales and marketing and overheads is not sustainable.”
Board Backup
Also made public in the SEC filing was a tersely worded letter by Allergan firing back at Ackman after he lodged conflict of interest charges against Pyott because of his roles as chairman and chief executive.
Ackman called for Allergan directors to hire independent advisers to look at Valeant’s bid.
“The [board] is well aware of its fiduciary duties to all stockholders and is being well-advised by its independent advisors,” Michael Gallagher, Allergan’s lead independent director, said in its response to Ackman.
“That being said, we strongly disagree with your statements and tactics including your blatant attempt to isolate David Pyott, who has created enormous value for the Allergan stockholders and who is keenly focused on the best interest of all stockholders.”
Allergan’s entire board, including Pyott, “is open to all options that will significantly enhance the long-term value of Allergan for all stockholders,” Gallagher said.
Big Backdrops
Valeant showed its preference for big backdrops when it took the opportunity of its annual shareholder meeting to fire back at Allergan.
“Allergan’s network of analysts and investors made several comments regarding Valeant which we believe are inaccurate,” Pearson said. “First that the Valeant model is not sustainable. Second, the Bausch & Lomb portfolio is not growing. Third, we slash and burn R&D and are not committed to innovation. And fourth, it is impossible to capture $2.7 billion in the synergies without impacting top line growth.”
Pearson promised to continue his argument during the webcast and meeting for shareholders in New York this week. He said his company will bring in executives “from around the world to showcase their business and their experience working with Valeant.”
Pyott’s memo, meanwhile, indicated that the battle between Allergan and Valeant won’t likely go away soon.
“In the coming months, you may see a lot of activity in the media, with attacks launched on Allergan by Valeant and Pershing Square,” wrote Pyott, who urged Allergan employees to “avoid distraction and continue to believe that we have built a unique company and culture that has focused on putting customers and patients first, and investing in innovation.”
