Valeant and Ackman Break From the Deal Playbook, Yet Again
From the moment it was announced, the $53 billion joint bid for Allergan, the maker of Botox, made by Valeant Pharmaceuticals and the hedge fund manager William A. Ackman, was highly unconventional.
It was the first time an activist investor had partnered with a strategic buyer. Mr. Ackman quickly accumulated Allergan shares, stirring debate over the long reporting window for such stock buildups. And it was a rare unsolicited offer in an age when most big mergers are agreed upon.
Yet in the last week, Valeant and Mr. Ackman have turned an already unusual deal into a one of the most confounding takeover attempts in recent memory. Their tactics have often departed from the established playbook, and at times have appeared counterproductive. And after they offered a succession of revised proposals, changed tactics and made public presentations, the fate of Allergan remained no more certain than it was in April, when the process began.
On Monday, Mr. Ackman and Valeant's chief executive, Michael Pearson, changed tack again.
Gone are plans for an informal shareholder referendum, which would have gauged Allergan shareholders' appetite for a deal. Mr. Ackman had believed that the vote would have pressured Allergan management into a deal, and would have been quicker than calling a special meeting to replace the Allergan board.
But that referendum, the first of its kind, would have been nonbinding. As such, it was almost certain to be ignored by Allergan's management, and was viewed as a distraction by Allergan shareholders.
What is more, there was concern among some Allergan shareholders that participating in the referendum might trigger the company's poison pill, diluting other shareholders and making a deal all but impossible.
'It's not entirely clear if the poison pill applies to the referendum or not,' Mr. Ackman said on Monday.
Now, Valeant and Mr. Ackman have abandoned plans for the referendum and are gearing up for a special meeting, after all.
On a call with analysts on Monday, the parties said they would seek a meeting to elect a new Allergan board, and were readying a tender offer they could take directly to Allergan's shareholders.
Such a move would ratchet up the pressure on Allergan's management. Yet it will take months to call a meeting and arrange for a vote, leaving Valeant and Mr. Ackman without any quick resolution to what is shaping up as a protracted takeover battle. Mr. Ackman said the earliest a meeting would be called is Aug. 7. Allergan, however, can delay a meeting, meaning a meeting could come as late as November.
The reformulated approach comes after a dizzying week during which Valeant and Mr. Ackman twice raised their offer for Allergan, without ever giving their target a chance to respond.
At an event on Wednesday, Valeant raised its offer to $58.30 in cash and 0.83 of a Valeant share for each unit of Allergan stock, worth slightly less than $180 per share, or about $49 billion. At the time, Mr. Pearson said he would not continue to raise its offer. 'We're not going to keep offering against ourselves,' Mr. Pearson said.
Yet days later, he did just that. On Friday, Valeant raised its offer to about $53 billion, or about $180 per share at the time of the announcement. As part of what Allergan is calling the 're-revised proposal,' Mr. Ackman would receive only Valeant stock as part of the deal, and do so at a discount to other Allergan shareholders. That would mean he would essentially forfeit $600 million in profit in a good faith gesture intended to get the deal done.
The latest offer, made Friday, appears to be in the range that Allergan shareholders want. On Monday, Valeant and Mr. Ackman said that Allergan shareholders wanted a price of about $180 per share, resulting in Friday's increased offer.
'While we believe that speed in concluding a transaction is in the best interest of both companies' shareholders, we will remain patient,' Mr. Pearson said on Monday. 'But to be very clear, we are very committed to consummating this merger.'
Yet it is not yet clear that Allergan management believes it is getting a fair price.
'The Allergan Board will carefully review and consider the Re-Revised Proposal in due course and pursue the course of action that the Board believes is in the best interests of the Company and all of its stockholders,' the company said on Monday, after Valeant and Mr. Ackman threatened a tender offer.
Mr. Ackman also took the opportunity on Monday to rebut some of Allergan's claims about Valeant's stock. Last week, in a move to pre-empt Valeant's raised bid, Allergan put out a presentation claiming that Valeant's business model was unsustainable.
On Monday, Mr. Ackman claimed that many of Allergan's largest shareholders also own Valeant stock, and believed the merger made sense.
'Our point of view is at this point we think Allergan's board and management are delaying the inevitable,' Mr. Ackman said on Monday. 'If they negotiated immediately, a merger agreement could be signed in a week. This transaction could get done in a matter of months. Obviously, time is money.'
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