Major Allergan Shareholder Would Vote For Valeant Merger

Major Allergan Shareholder Would Vote For Valeant Merger

Allergan, Inc. (NYSE:AGN) continues trying to protect against a hostile takeover by Valeant Pharmaceuticals Intl Inc (NYSE:VRX). Valeant has been pushing for a deal, but Allergan has repeatedly rejected its advances. The big question now is whether shareholders would vote for a deal, thus pushing through a takeover against management’s wishes. Now at least one Allergan shareholder says that, given the chance, he would indeed vote for Valeant to take over Allergan.

Allergan needs Valeant: shareholder

Portfolio manager Peter Mann of Gluskin Sheff told BNN that he thinks a takeover by Valeant Pharmaceuticals Intl Inc (NYSE:VRX) is in Allergan, Inc. (NYSE:AGN)’s best interests. He thinks Allergan really can’t continue to cover the high costs it’s dealing with.

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For example, Allergan, Inc. (NYSE:AGN)’s research and development costs are at 16% of its revenue, which he says is “well above” all of their competitors. In addition, he said Allergan pays a tax rate of between 26% and 27% because of where it is located in California. That’s about 10 to 15 points higher than many of its competitors. Mann says Allergan is a cost-heavy company and isn’t able to maintain its costs on its own any longer.

Valeant misunderstood?

In addition, the Allergan, Inc. (NYSE:AGN) shareholder noted that for Valeant Pharmaceuticals Intl Inc (NYSE:VRX), research and development is acquisitions rather than reinvesting its own capital. He thinks that many of the things that have been said about Valeant just aren’t true and that instead, a lot of people just don’t understand the drug maker’s business model.

“I think a lot of the claims associated with Valeant are unfair,” Mann told BNN. “And largely it’s due to the offshore nature of their tax base, the fact that this inversion process has gotten so large across so many corporations.”

In addition, he said he thinks Valeant Pharmaceuticals Intl Inc (NYSE:VRX) will keep investigating in opportunities and notes that the company is buying more later stage drugs so that they can “wring the last few dollars out of them and then be able to reallocate that capital.”

Allergan’s defense probably won’t be Shire

Some have speculated that Allergan, Inc. (NYSE:AGN) will gobble up U.K.-based Shire PLC (ADR) (NASDAQ:SHPG) (LON:SHP) as a way to become too large for Valeant Pharmaceuticals Intl Inc (NYSE:VRX) to acquire. However, Guggenheim analysts think a deal with Shire would be too expensive for Allergan. They agree with Mann and believe that a deal with Valeant is the only way for Allergan shareholders to make money over the next 12 months.

In a report dated June 23, 2014, analyst Louise Chen said a conference call with Shire PLC (ADR) (NASDAQ:SHPG) (LON:SHP) management this week about the offer from AbbVie Inc (NYSE:ABBV) suggests that Allergan, Inc. (NYSE:AGN) would be able to buy Shire. She noted that Shire turned down the offer, saying that it undervalued the company.

She thinks that any offer for Shire PLC (ADR) (NASDAQ:SHPG) (LON:SHP) will have to focus on the company’s pipeline and sales growth. The drug maker estimates that its pipeline will generate $3 billion in sales by 2020 plus $2 billion sales from the products that are already in its product portfolio. By focusing on the pipeline and sales growth, she sees more dilution for Allergan, Inc. (NYSE:AGN) shareholders if the company would buy Shire.

The analyst also thinks it’s unlikely that Nestle will merge with Allergan, Inc. (NYSE:AGN) to fend off Valeant Pharmaceuticals Intl Inc (NYSE:VRX).

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