Valeant Exec's $50.6 Million Paycheck Makes Him the Second Highest Paid Non-CEO Employee

Published: Apr 14, 2015

Valeant (VRX) Exec's $50.6 Million Paycheck Makes Him the Second Highest Paid Non-CEO Employee
April 13, 2015
By Riley McDermid, Breaking News Sr. Editor

Canadian drugmaker Valeant Pharmaceuticals International, Inc. is back in the headlines again, after its $50.6 million paycheck for Executive Vice President Ari Kellen made him the second-highest freshly hired non-chief executive in the U.S.--second only to Apple ’s new sales chief, Angela Ahrendts.

According to summary compensation table data compiled by Bloomberg and public filings, Kellen got performance-based stock awards of $36.6 million in front-loaded pay, $752,885 in salary, a $5 million cash bonus linked to Valeant’s recent buyout of Bausch & Lomb, $6.5 million in additional restricted share units as part of a stock matching program, and a $1.8 million annual cash bonus.

That puts him in the very top-tier of highest paid corporate honchos anywhere, said the news service, including most biotech executives.

“Kellen’s package is almost five times larger than that of Valeant CEO Michael Pearson, who received $10.3 million,” said Bloomberg.

Kellen has only been with Valeant since January 2014, when he came on board as executive vice president and company group chairman. His purview includes eye health, dermatology, research and development, and Valeant’s Latin American units.

Joe Kager, a managing consultant at POE Group, a compensation consulting firm, told Bloomberg that a pay package that size will certainly raise eyebrows--in any sector.

“If you have a new hire and you had to take them away from another competitor, sometimes you’ll see a substantial grant,” Kager said. “It’s not that atypical if he’s really a shooting star, but it is an awfully large number.”

Valeant has had a long run of publicity recently, after the successful buyout of Salix Pharmaceuticals, Ltd. , and a less lucky bid for Botox maker Allergan Inc. last fall. Since 2008, Valeant has acquired more than 100 smaller companies, a pace Chief Financial Officer Howard Schiller told stakeholders earlier this year that will slow, but will still be active.

The tug of war for the acquisition of Salix Pharmaceuticals, Ltd. ended March 16, after Valeant said it would sweeten its bid for Salix and increase it from $158 per share to $173 in cash, more than rival Endo International plc offer. The deal officially closed during the first week of April.

Salix said in a statement it had accepted the new Valeant offer and Endo said early that same day it had officially withdrawn its own bid.

Valeant’s offer was based on Salix's 63.33 million shares outstanding as of Feb. 23 and gives the company an enterprise value of about $15.8 billion.

"While we are disappointed with this outcome, we have been and will continue to be disciplined in our approach to potential acquisitions. We would like to wish Salix and Valeant continued success as they move forward with their transaction,” said Endo in its statement.

“As a next step, Endo is focusing our attention on other opportunities in our robust deal pipeline and on maximizing our organic growth initiatives including progressing our R&D pipeline. We will continue to drive Endo's growth as a global leader in specialty pharmaceuticals and look forward to creating value for our shareholders while improving patients' lives."

Salix confirmed the week prior that it had received an unsolicited bid for the company from Endo International Plc for a whopping $170 to $175 a share in cash and stock, a significant premium to its previous suitor Valeant’s price. The news meant that the $14.5 billion marriage between Valeant Pharmaceuticals and Salix Pharmaceuticals has hit a major speed bump on the way to the altar, causing a fraught week of frenzied negotiations as the two firms tried to outjockey one another.

"We believe that we could successfully close this transaction within a period as short as 5-6 weeks of a negotiated agreement," De Endo Chief Executive Officer Rajiv De Silva said in an email to employees on Sunday, prior to the deal announcement.

For the winning big, Valeant teamed up with activist hedge fund investor Bill Ackman, who owns 5 percent of the company. He and Valeant made an unsuccessful hostile takeover bid for Botox maker Allergan Inc. last fall, but appear to have been more successful this time around.

“In order for them to take the Endo transaction, they have to walk away from an all-cash deal,” said Ackman told Bidnesson Friday. “If you think Valeant is getting it on the cheap, then you should buy Valeant stock, which is what we did. We think Valeant stock is very cheap.”

The fate of employees at all three firms remained up in the air, as Wall Street and staff rosters alike tried to parse out what the various pairings could mean if consummated. For its part, Valeant said it was standing behind its existing bid.

North Carolina-based Salix Pharmaceuticals, which manufactures medications to treat various stomach ailments, is being heavily courted by the two pharmaceutical entities, the latest move in a heavy round of industry acquisitions over the past few months. Last year, $268 billion in pharmaceutical mergers and acquisitions were announced globally, more than double the volume in 2013, the Wall Street Journal reported.

“We are firmly committed to our all-cash agreed transaction, which delivers immediate and certain value to Salix shareholders,” the company said in a statement.

The week before, Endo sent a letter to Salix’s board, and Salix quickly issued a press release saying it would review both offers, though it still remains party to its deal with Valeant.

“The Salix Board of Directors, in consultation with its financial and legal advisors, will carefully review and consider the Proposal and pursue the course of action that it believes is in the best interests of the Company’s stockholders. The Company’s stockholders do not need to take any action at this time,” said Salix in a statement.

“As previously announced, Salix is party to an Agreement and Plan of Merger, dated as of February 20, 2015, with Valeant Pharmaceuticals International, Inc.,” it reminded market watchers.

The acquisition, which was approved by both companies' board of directors, comes just days after news leaked that U.K. pharmaceutical firm Shire Pharmaceuticals had also advanced its own bid for Salix. That set up a potential bidding war for the bowel-drug company. Shire was speculated to be a good fit for Salix because of its track record buying rare disease related companies, including the $5.2 billion acquisition of NNPS Pharmaceuticals, Inc. in January and a $4.2 billion acquisition of ViroPharma Incorporated .

Salix makes irritable bowel syndrome drug Xifaxan but has struggled with inventory issues and financial reporting problems recently.

"Salix's market-leading gastrointestinal franchise is an ideal strategic fit for Valeant's diversified portfolio of specialty products," said J. Michael Pearson, Valeant's chairman and chief executive officer, in a statement.

"The growing GI market has attractive fundamentals, and Salix has a portfolio of terrific products that are outpacing the market in terms of volume growth and a promising near-term pipeline of innovative products," said Pearson. "With strong brand recognition among specialist GI prescribers, a highly rated specialty sales force, and a significant product and commercial presence across the undertreated and underserved gastrointestinal market, this acquisition offers a compelling opportunity for Valeant to create a strong platform for growth and business development."

The news comes amid reports that Valeant is once again going shopping, despite pressure from shareholders and Wall Street analysts to rein in its free-spending buying spree.

Valeant was rumored earlier this month to be mulling over a bid for Raleigh, N.C.-based Salix Pharmaceuticals, though many market watchers worried that Valeant will pay too much for Salix, which has a market value of around $9 billion.Shibani Malhotra, an analyst with Sterne Agee Group, has estimated that the shares could shoot up as high as $170 each after a takeover, a significant bump from where it now sits at $157.85.

“We believe the resolution of the accounting-related overhang should ease investor concerns,” said Malhotra in his note, “as reliable financials will be available near-term for investors as well as potential acquirers.”

Schiller said shareholders should expect "small and medium sized transactions" in 2015, he told the audience of J.P. Morgan Healthcare Conference which began Monday in San Francisco and is the oldest and largest conference of its type. It includes 300 of the largest biotech, healthcare and biopharma companies presenting their top-line data and estimates to 4,000 of eager bankers, analysts, institutional investors, hedge funds and journalists.

Valeant has made 60 acquisitions in six years, including its most recent deal to buy eye care company Bausch & Lomb for $8.7 billion.

Valeant has previously said it aims to be one top five pharma companies by the end of 2016, which means it would need to have a market cap of $150 billion, a difficult task as its debt continues to balloon . Right now, Valeant has $17 billion in debt on its books from $4.9 billion in 2012, a huge leap from $2.6 billion in 2008, when CEO Michael Pearson joined the company.

The company told analysts during a fourth quarter call last year that they hope to keep the deal making up.

"We can't predict the path that will get us to the $150 billion, per se. But we find it's very helpful to set a structure of aspiration,” an executive said at the time. “It's something that we've done every year, and it gives our investors a sense of where we're trying to go. And unless you aim high, you don't achieve high."

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