Institutional Shareholder Services (ISS) Recommends Allergan Shareholders Call A Special Meeting Of Shareholders

  • ISS Raises Significant Concerns about Corporate Governance Practices at Allergan
  • ISS Comments on Valeant’s “Enormous Success over the Tenure of its Current CEO”
  • ISS Highlights Allergan’s Reluctance to Treat its Shareholders as “Owners” and Allow Shareholders to “Make Serious and Important Decisions about the Future of Their Company”

valeant pharmaceuticals

Valeant and Pershing Square comments on Institutional Shareholder Services

Valeant Pharmaceuticals Intl Inc (NYSE:VRX) (TSX: VRX) (“Valeant”) and Pershing Square Capital Management, L.P. (“Pershing Square”) today commented on Institutional Shareholder Services’ (“ISS”) recommendation in support of Pershing Square’s effort to call a special meeting of Allergan, Inc. (NYSE:AGN) shareholders.  Pershing Square is seeking to call a special meeting to address a number of important matters, including the removal of six incumbent directors from the Allergan Board, which has failed to do any reasonable investigation of the Valeant offer.

ISS has recommended that shareholders of Allergan, Inc. (NYSE:AGN) PROVIDE CONSENT and complete and return all necessary documents required to call a special meeting of Allergan shareholders. Earlier this week, Glass Lewis also supported Pershing Square’s effort to call a special meeting.

In its report, ISS commented on Valeant’s and Allergan’s business models and track records:

“Many of the initiatives [Allergan] has announced, moreover—reducing R&D and SG&A expense, looking at acquisitions—are strategies Valeant has used to enormous success over the tenure of its current CEO. This suggests both that there is merit in these business strategies, if Allergan can choose as wisely and execute as well and as boldly as Valeant —and also, perhaps, that Allergan, Inc. (NYSE:AGN)’s relentless criticism of the Valeant Pharmaceuticals Intl Inc (NYSE:VRX) (TSX: VRX) business model is rooted less in the conviction Valeant’s model is dangerously flawed than in the conviction anything outside of the defensive perimeter should be scorched.”*

ISS criticized Allergan’s bylaw provisions

In addition, ISS criticized Allergan’s bylaw provisions:

“As a response to the deeper question of why Allergan, Inc. (NYSE:AGN)’s bylaw constraints were an appropriate response to the shareholder mandate to provide certain governance rights, by contrast, it appears to have been an exercise in concealing what was never worth finding: the Allergan bylaws are far more restrictive than any of the comparator companies the board apparently reviewed, with no discernable advantage for Allergan shareholders. … The risk from which these bylaws “protect” shareholders, to put it bluntly, is the risk that they will be treated as owners, and asked to make serious and important decisions about the future of their company.”

“We are pleased that ISS, along with Glass Lewis, has affirmed that Allergan, Inc. (NYSE:AGN) shareholders deserve the opportunity to have their voices heard and support a special meeting of Allergan shareholders,” said Bill Ackman, CEO of Pershing Square.  “The ISS Report should cause Allergan shareholders to question the credibility of a Board that is pursuing frivolous litigation tactics and baseless attacks to delay or stop the right for shareholders to fix anti-shareholder bylaws, elect shareholder-friendly directors and to voice their concerns about Allergan’s poor corporate governance.  The board’s approach to the Special Meeting is consistent with how they have handled the Valeant offer – the board continues to ignore its fiduciary responsibilities to engage with Valeant and properly analyze and consider the benefits and shareholder value that can be created by the potential business combination as well as other alternatives.”

Michael Pearson says Valeant’s offer presents significant premium to Allergan

J. Michael Pearson, Valeant Pharmaceuticals Intl Inc (NYSE:VRX) (TSX: VRX) chairman and chief executive officer, commented, “Our offer represents a significant premium to Allergan’s unaffected stock price, and shareholders should have the right to determine for themselves whether they want to pursue this enormously value-creating transaction.  Given the Allergan, Inc. (NYSE:AGN) board’s repeated refusal to engage in good faith negotiations with Valeant, their ‘scorched earth’ campaign of unjustified attacks on Valeant’s business and their efforts to prevent Allergan shareholders from voicing their perspectives on our offer, we believe that the only path forward is to replace a majority of the Allergan board, remove Allergan’s anti-shareholder governance provisions and allow investors the opportunity to decide the outcome of this transaction.  Valeant remains committed to pursuing this compelling transaction, which will create an unrivaled platform for growth and value creation in healthcare.”

Excerpts from ISS Analysis & Recommendation

Commenting on the “extensive bylaw constraints” the Allergan board has placed on the right to call a special meeting, ISS stated:

  • “There is little credible reason to believe the Allergan, Inc. (NYSE:AGN) board has in any meaningful way struck an appropriate balance between the ability of shareholders to exercise their governance rights and the risk some shareholder might somehow abuse those rights. … Neither is it clear, however, that some of these requirements—particularly the information requirements on “associates”—in any meaningful sense useful to the company in trying to weed out whatever it is the board most fears when shareholders want to use their outdoor voice.”
  • “Given the experience of many shareholders currently road-testing this same bylaw in the current consent solicitation, moreover, there seems increasingly little doubt that shareholders should seize the opportunity to do something about it, by supporting the call for a special meeting at which they will be able to eliminate them.”

In addition to recommending that Allergan, Inc. (NYSE:AGN) shareholders should PROVIDE CONSENT for the request to call a special meeting, ISS noted the following points for shareholders to consider in connection with the special meeting:

  • “Having gone through the effort to call it, moreover, shareholders may also want to keep a weather eye on whether the board acts in the spirit of good governance to honor their request promptly, or instead engages in additional delaying tactics. Among these, it should be noted, is the possibility the board—having received a valid request from a sufficient number of shareholders who have undertaken the arduous work of complying with the bylaw—then insists on taking the full 120 days it has allotted itself to call the special meeting. As a benchmark, most companies—even Allergan, Inc. (NYSE:AGN), judging from its track record in calling annual meetings—find 30-45 days sufficient when the need arises.”
  • “If what transpires, once a valid request for a special meeting has been submitted, suggests an enduring and irreconcilable difference of opinion about what constitutes “good governance,” shareholders may wish to further avail themselves of the opportunity, once a special meeting is finally called, to address the root cause of these governance concerns directly.”
  • “Given the substantial premium of the Valeant Pharmaceuticals Intl Inc (NYSE:VRX) (TSX: VRX) offer to the undisturbed price of Allergan shares, it may seem wise, as well, to allow the large strategic question —whether it is credible to believe remaining standalone will deliver higher value than selling—to also come to a head at the same meeting.”

Excerpts from Glass Lewis Report

Noting that investors electing to participate in Pershing Square’s Pershing Square’s efforts to call a special meeting must satisfy a myriad of significant and ongoing administrative hurdles, while the board can seek to nullify those efforts through a decidedly simpler proxy solicitation process, Glass Lewis notes: