Senior executives from Morgan Stanley (NYSE:MS), now said to be a key consultant to Valeant Pharmaceuticals Intl Inc (NYSE:VRX) (TSE:VRX), called Valeant a “house of cards,” in an e-mail to Allergan, Inc. (NYSE:AGN) management saying “your investors should not want to take their stock.”

valeant Allergan

Allergan has kicked up its pressure on the stock price of Valeant

In releasing personal e-mails to senior management, Allergan, Inc. (NYSE:AGN) has kicked up its pressure on the stock price of Valeant Pharmaceuticals Intl Inc (NYSE:VRX) (TSE:VRX), a key component of its strategy to stave off the unwanted advances of roll up buyout firm Valeant Pharmaceuticals. Allergan is aggressively making the case Valeant has an “unsustainable business model, which relies on serial acquisitions and cost reductions, as opposed to top-line revenue growth and operational excellence,” according to a statement released today.

Allergan brought out a group of high profile market commentators all with the same message: Valeant Pharmaceuticals Intl Inc (NYSE:VRX) (TSE:VRX)’s stock price could tumble.

Before Morgan Stanley (NYSE:MS) began advising Valeant, it was pitching Allergan, Inc. (NYSE:AGN) to be a lead provider of merger and acquisitions advice.  During this period, Robert Kindler, vice chairman and global head of merger and acquisitions at Morgan Stanley said in an e-mail to Allergan’s top management said “My takeaway is that AGN is not being nearly aggressive enough in going after the Valeant Pharmaceuticals Intl Inc (NYSE:VRX) (TSE:VRX)business model and currency.”

This prompted David Horn, managing director at Morgan Stanley’s Investment Banking Division to further the negative talk and propose to Allergan the exact strategy they are following in battling Valeant.

“Part of what Rob [Kindler] is suggesting [to Allergan] is to allow him to use his significant relationships with media and analysts to provide a clear and detailed articulation of why Valeant Pharmaceuticals Intl Inc (NYSE:VRX) (TSE:VRX) is a house of cards and your investors should not want to take their stock,” Horn wrote in an e-mail to Allergan Chief Financial Officer Jeff Edwards on May 18, 2014.*

Valeant – Allergan deal is based on stock price

The deal Valeant is proposing to acquire Allergan is heavily based on Valeant’s stock price, which is being used as currency to pay Allergan investors.  Allergan, Inc. (NYSE:AGN) management is opposed to the acquisition, believing Valeant Pharmaceuticals Intl Inc (NYSE:VRX) (TSE:VRX)’s business model could fail, harming Allergan shareholders. This thought is apparently bolstered by a close Valeant confidant.

In the statement released by Allergan, other notable investors also provide their thoughts, including Matthew Herper, senior editor for Healthcare at Forbes calling Valeant’s take over math “at worst its deceptive.”

“…[Valeant’s] treatment of figures relating to the industry’s R&D productivity is so indefensible as to beg the question of whether its executives can really command the facts they are using, or whether they really understand the trends on which they say they are basing their business. A one-hour call with four of Valeant’s top executives last night did not convince me otherwise.”*

Quoting hedge fund investor Jim Chanos, the statement attacked the core business model:

“We’re short because it’s a roll up and roll ups present a unique set of problems. Roll ups are generally accounting-driven, and we certainly think that’s the case in Valeant. We think Valeant Pharmaceuticals Intl Inc (NYSE:VRX) (TSE:VRX) is playing some very aggressive accounting games when they buy companies, write down the assets. But really, for us, and we were short before the Allergan, Inc. (NYSE:AGN) announcement, a roll up is a roll up and you have to analyze a company that’s not growing organically and has to deliver value by doing bigger and bigger acquisitions, and usually the companies do an acquisition too far.”*