Activist Investor Carl Icahn's Big Buy of Allergan Shares Raises Questions of Influence

Activist Investor Carl Icahn’s Big Buy of Allergan Shares Raises Questions of Influence June 1, 2016
By Mark Terry, BioSpace.com Breaking News Staff

Activist investor Carl Icahn posted on his website yesterday that he had acquired a “large position” in Dublin-based Allergan Plc .

This statement had many investors and analysts raising their eyebrows. When Icahn takes a big stake in a company, it’s typically not long before he starts advocating—loudly—for change, hence the “activist” descriptor.

However, it’s possible that’s not the case this time. In his statement, Icahn says he is “very supportive of CEO Brent Saunders. We were instrumental in bringing Brent on board as the new CEO of Forest Labs a few years ago and worked cooperatively and constructively with him to help increase value for all Forest shareholders.”

In an email to Reuters, Allergan spokesman Mark Marmur said Allergan had “no reason to believe that this investment was made for purposes of influencing the actions of management or control of the company.”

Allergan, best known for Botox, is at a turning point after the collapse of the merger with Pfizer . It will also soon wrap up its sale of its generics business to Israel-based Teva Pharmaceutical Industries for $36 to $40 billion. Once that deal is completed, which is expected to finalize in the first half of this year, Saunders has indicated he plans to buy some companies for more than $1 billion, as well as pay off some debt so Allergan can make bigger deals.

There are at least two ironies in Icahn acquiring a large stake in Allergan. First, Icahn started a political action committee (PAC) with $150 million that advocated tax reform that would eliminate tax inversion deals—the exact same type of deal that marked and killed the Pfizer-Allergan merger.

The other is Icahn’s activist role with Canadian drugmaker Valeant Pharmaceuticals . Allergan and Valeant have some similarities, such as super-fast share price gains, both are serial acquirers, both have been involved in tax inversions. There are differences, though. Valeant has come under criticism for extreme price hikes and deep cuts in research-and-development costs. Allergan has not.

Valeant, along with activist investor Bill Ackman’s Pershing Square Capital Management, attempted a hostile takeover of Allergan in 2014, which inspired a U.S. Securities and Exchange Commission (SEC) investigation for insider trading and lawsuits by Allergan. Max Nisen, writing for Bloomberg, hints that there might be an abject lesson for Saunders, saying, “The romance between Bill Ackman and former Valeant CEO Mike Pearson started fast, burned hot and flamed out. They were introduced in early 2014 through a mutual friend. By April, they had gotten together on an unusual scheme to buy Allergan. Less than two years later, Ackman engineered Pearson’s ouster.”

Icahn, on the other hand, has been supportive of Saunders in the past, being largely responsible for Saunders becoming chief executive officer of Forest Laboratories . Icahn was heavily involved in the change of Actavis (now Allergan) from a company that focused on generic medications to what it is today, which is being further solidified by Saunders’ completion of the Teva deal.

There’s no indication of the size of Icahn’s stake in Allergan, other than a “large position.” And it’s possible that, as Bloomberg notes, “Icahn’s investment looks far more conventional, even boring, and such an implosion [like Valeant] seems less likely for Allergan.”

Maybe. As the Chicago Tribune writes, “While Icahn has expressed his support for Allergan’s management, he’s done the same at other companies and then agitated for change nonetheless. After disclosing an Apple stake in August 2013, Icahn said he ‘could not be more supportive of you, the existing management team, the culture at Apple and the innovative spirit it engenders’ in a letter to Chief Executive Officer Tim Cook.”

Then he leaned on Cook to increase its share buybacks and boost dividends, which fueled a share rally in 2014 of 38 percent, which died down in 2015, leaving Apple shares down 4.6 percent.

But Icahn is not new to investing in biopharma. He has invested in Biogen , Amylin Pharmaceuticals (AMLN), Vivus and others.

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