Two of Allergan’s Biggest Investors Call for Management Split

Appaloosa Management’s David Tepper and Senator Investment Group’s Douglas Silverman sent a letter to Allergan’s board of directors yesterday asking—or demanding—that the company split the roles of chief executive officer and chairman. Both positions are currently held by Brent Saunders.

Appaloosa owns about one percent of Allergan shares, as does Senator. The hedge fund has been urging a management shift shortly after Saunders described a plan to sell the company’s women’s health and infectious disease businesses. That plan came about after a strategic review that also considered dividing the company or buying other companies.

“It is time for Allergan’s management to concentrate on running a world-class pharmaceutical and aesthetics business and forego thought of, or the exhilaration from, an ambitious acquisition strategy,” Tepper wrote in the letter. “We were underwhelmed by the Company’s half-hearted attempt to restore strategic momentum.”

Allergan responded in a statement, indicating that shareholder input was always welcome, although it didn’t address Tepper’s specific requests. It did suggest that the recent strategic review was meant to create a “more focused” company.

Allergan stated, “Our board has been active and aggressive in board refreshment with three new directors joining our board over the past 16 months, and board refreshment continues to be a top priority. The board also strongly believes in independent leadership as exemplified by the role of Chris Coughlin, our lead independent director, who was chosen as Director of the Year by the National Association of Corporate Directors in 2015. Mr. Coughlin brings over 30 years of biopharmaceutical industry experience to the Allergan board.”

Tepper and Silverman had also asked that two of the additional directors be replaced.

The statement read, “Our number one priority continues to be executing on operational excellence and delivering strong results to drive long-term shareholder value.”

Likely some of the concern about the company’s direction is related to its debt. Over the past several years its debt has grown to $26.6 billion, which is more than half the company’s market value. Much of that debt came from numerous acquisitions.

Shares rose about 2.5 percent yesterday before losing about one percent. Shares have dropped about 33 percent in the last year.

The shareholders reportedly sent similar letters to Allergan’s board in April and May. In May, the Federal Trade Commission gave Appaloosa anti-trust clearance to become an activist investor in Allergan.

Tepper and Silverman’s letter noted, “The token measures outlined in Mr. Saunders’ presentation betray the Board and management’s desire to cling to a status quo that has produced three years of steadily declining stock performance and a fire-sale market valuation. It is now clear that fresh thinking is absent from the current regime, thus explaining the market’s complete loss of confidence in the stock. To that point, we reiterate our strong suggestion that at a minimum the Company (1) split the office of CEO and Chairman; (2) retain a new Chairman or CEO from outside the Company; (3) replace at least two additional directors on the current Board; and (4) upgrade management personnel in critical operating units.”