January 22, 2015
By Riley McDermid, BioSpace.com Breaking News Sr. Editor
The post-mortem of the attempted 10-month takeover for Botox maker Allergan Inc. is continuing Thursday, after the chief executive of its main pursuer, Valeant Pharmaceuticals International, Inc. , told the Financial Times that he has significant regrets about how the deal was pursued.
Valeant’s bruising fight for Allergan Inc. began at the beginning of 2014 following an unusual alliance with legendary activist investors Bill Ackman, who had already amassed a 10 percent stake in Allergan. He and Pearson then teamed up on an effort to unseat Allergan’s board—and are currently the focus of multiple lawsuits and an investigation into whether or not their partnership was collusive by the U.S. Securities and Exchange Commission.
Valeant CEO Mike Pearson told the paper that he was “naive” and made a “major miscalculation” over possible rivals in the chase (such as Actavis plc , who eventually bought Allergan for $66 billion). He said he did a “poor job” overall of strategizing the buyout.
“Part of our thesis was that no one else would come in, and we were wrong,” he said. “We were looking more at the bigger companies — like Johnson & Johnson , GlaxoSmithKline and Sanofi — and largely thinking they could pay all-cash, which we couldn’t.”
“So when Actavis came in, I was naive and thought we had a better fit strategically — more synergies and a lower tax rate. But whenever there’s an auction we are likely to lose, because we are so strict on price, so that was a major miscalculation.”
Pearson said he still feels the sting of scrutiny from outsiders critical of the deal, who were convinced it was a bad deal for Valeant shareholders and a shocking waste of a resources.
“No one likes to be criticized, and in particular no one likes it when it’s not true. I really felt for our employees,” he said.
Still, Pearson said Ackman was a “very good partner who kept his word” but was clear about his current relationship: “It’s over,” he said. Commenting on Ackman’s recent suggestion that Valeant scoop up smaller animal health company Zoetis , Pearson said the company remained uninterested.
“We have no interaction or contact with them. I think it’s highly unlikely anything is going to happen with Zoetis,” Pearson says. Valeant would, however, be interested in buying an animal health group focused solely on pets.
Ackman himself has had a lot to say about the Valeant/Allergan deal, saying in November that his “biggest mistake” in the pursuit was launching a tender offer, BioSpace reported exclusively at the time.
According to sources at an internal ISI meeting, Ackman said the tender offer for Allergan was “purely optical” to get the company to yield to arbitration pressure and “did nothing really other than incur legal costs.”
Ackman told traders at ISI that he will be meeting with Actavis CEO Brent Saunders this Friday “for the first time,” as his fund is “still in learning mode” to how the newly merged deal potentially fits into their 4 to 6 year “investment horizon criteria.”
Ackman did say that teaming up with Valeant had taught him a few things as well, even if the partners didn’t wind up with Allergan in the end.
“On VRX, their stock had meaningful growth and just simply waited too long,” said a trader at ISI. “There is no bad blood or feelings. In the last 90 days, VRX business improved dramatically so they were reluctant to pull trigger.”
The partnership has since drawn the scrutiny of federal regulators at the U.S. Securities and Exchange commission, after Allergan complained that there was illegal coercion between Ackman and his hedge fund Pershing Square and Valeant Pharmaceuticals. The two helped push Allergan’s share price up 15 percent—a boon of around $1 billion to Ackman’s 9.7 percent stake.
The savvy hedger will pocket $2.7 billion from the $66 billion deal because Pershing has a 9.7 stake Allergan and will make a killing on the difference between its average $126-per-share cost and Actavis’ $219-a-share winning bid. The money has apparently made Ackman magnanimous: He congratulated Actavis on its successful acquisition of Allergan earlier this week.
“We congratulate Actavis and Allergan on their announced transaction. As a result of the deal, we are withdrawing our special meeting request,” Ackman said in an e-mailed statement.
In the broader landscape, Ackman told traders that Allergan and Zoetis (ZTS) are his first healthcare positions in 11 years, but that he’s “open to more healthcare situations in the future.” Ackman said that Zoetis in particular had been educational, saying Pershing views ZTS as “strategically valuable, good durability of cash flow, able to work with management, and opportunities in cost cutting.”
Ackman said he was “concerned” Zoetis would be a distraction to the Allergan situation and “confusing to the market” but has apparently put those concerns to rest now that Allergan is safely married off.
BioSpace Temperature Poll
What Are Your Predictions for the Price Bidding War? The market has been buzzing about an escalating price war between large payers like Express Scripts and Big Pharma. Multiple deals last week showed Gilead forming exclusive pacts and smaller companies like Kite Pharma starting talks early. What do you think will be the effect on prices? BioSpace wants your opinion!
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