Allergan Formally Rejects Valeant Offer

Allergan

For the second time, Allergan, Inc. (NYSE:AGN) has formally rejected the $46 billion unsolicited takeover offer from Valeant Pharmaceuticals Intl Inc (NYSE:VRX) (TSE:VRX).  Allergan, which previously rejected a Valeant takeover bid over one year ago, said the deal would create risks for Allergan’s stock holders, Valeant has undervalued Allergan and Valeant’s business model is unsustainable, according to a Wall Street Journal report.

This time Allergan, Inc. (NYSE:AGN) teamed with activist hedge fund manager William Ackman of Pershing Square Capital Management, who acquired a 9.7% stake in Allergan before the deal was announced. Ackman has generated nearly $1 billion in profit on that trade thus far.  Allergan adopted a poison pill defense in an attempt to thwart the deal whereby if an unapproved investor purchases more than 10% of the shares other stockholders could then buy discounted shares, diluting the value of the aggressor’s holdings.

Allergan – Valeant Deal questioned

In questioning the value of the deal Valeant Pharmaceuticals Intl Inc (NYSE:VRX) (TSE:VRX) is offering, Allergan, Inc. (NYSE:AGN) is said to be questioning the highly leveraged nature of the deal – 75% of the value of the new company would be in stock – as well as attacking Valeant’s business model.  Valeant’s strategy is to roll up various biotech companies then slash costs to the bone – most particularly research and development – while emphasizing sales and marketing.  This strategy has been attacked as a short term strategy that does not encourage medical advancements. Botox manufacturer Allergan has a history developing and innovating new products, making a combination a philosophical culture clash.

For its part Allergan, Inc. (NYSE:AGN) said Monday earnings per share is expected to increase as much as 25% in the coming year and the firm expects to see double-digit revenue growth.  Analysts polled by Thomson Reuters, however, have lowered expectations of a 17% increase in earnings and a 9% jump in revenue, according to the report.

Increasing pressure

Valeant Pharmaceuticals Intl Inc (NYSE:VRX) (TSE:VRX), in keeping with the activist investor strategy, has been escalating pressure on Allergan to succumb to its advances.  The company is pushing for a special board meeting with the goal of removing all or some of Allergan, Inc. (NYSE:AGN)’s board members, taking the battle to the shareholders in what could likely be a public fight for control of the company.  Valeant had been traveling the country to meet with Allergan’s top shareholders in a bid to persuade them to support Valeant’s plans.



About the Author

Mark Melin
Mark Melin is an alternative investment practitioner whose specialty is recognizing a trading program’s strategy and mapping it to a market environment and performance driver. He provides analysis of managed futures investment performance and commentary regarding related managed futures market environment. A portfolio and industry consultant, he was an adjunct instructor in managed futures at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009, where he was a registered associated person (National Futures Association NFA ID#: 0348336). Mark has also worked as a Commodity Trading Advisor himself, trading a short volatility options portfolio across the yield curve, and was an independent consultant to various broker dealers and futures exchanges, including OneChicago, the single stock futures exchange, and the Chicago Board of Trade. He is also Editor, Opalesque Futures Intelligence and Editor, Opalesque Futures Strategies. - Contact: Mmelin(at)valuewalk.com