Ackman Teaming with Valeant to Takeover Allergan
One of the most talked about stories yesterday was Valeant teaming up with Ackman to buy Allergan. This activist campaign is a 'novelty' (CNBC claims that there was one prior precedent) as the potential acquirer was approached before an investment was made in the target.
The tag-team effort is unusual because activist investors typically don't approach a potential acquirer before investing in a target. They generally take stakes in companies and then push for financial or operational change in a bid to boost the company's performance and its share price.
While the move seems to be legal, it raises some questions as Pershing Square was buying a stake in a company which it knew was going to be in play. Personally I feel the legitimacy of this move is strengthened by the fact that Pershing is adding value to Valeant's bid and is committing significant capital upfront with the intention of being a significant shareholder in the combined company (owning roughly $1.5bn). This indicates that they interested to benefit in the long run from the combined company and are not exploiting a loophole in the rules for a short term gain.
It is also interesting to note that Carl Ichan, one of the pioneers of activism and not always Ackman's biggest fan, defended the move in an interview with CNBC last night and didn't reject the idea of making a similar move in the future.
What are your thoughts about this strategy? Do you think that such activism should be allowed?
Sources: CNBC Ichan, CNBC Cramer 'Legal Scam', WSJ
Seems like Valeant is buying everyone up left and right (Solta, B&L, etc.). So much action in HC M&A btwn VRX&AGN//AZN&PFE.
I wonder if Billy will talk VRX into printing "Fuck Herbalife" on their contact lenses.
VRX is really just a company full of consultants with no R&D pipeline - all they do is acquire and cut costs. But cutting out marketing for pharma just reduces your next wave of revenues so the earnings quality is shit. They basically think they can take the R&D risk out of the biopharma model and aren't the first to try it. Other big pharma companies eventually got slammed - the only difference is vrx is catching themselves earlier before the fall.
IMO vrx needs agn more than the other way around - they also need ackmann more than ackmann needs them. i wouldn't touch vrx until they build themselves into a legitimate research house (doubtful although this deal is kind of a move toward that direction) because vrx can't play this acquisition game forever. Pharma is about landing homeruns, not walking to first base. big risks big rewards.
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To clear some things up, they do significant R & D, but they only buy late stage clinical trials they dont go through the whole process.
Ackman's Allergan involvement is: 1) certifiably legal (not "seemingly", not "possibly", not "questionably") and 2) not at all novel. "Toeholds" were a common takeover tactic in the 1980s, which largely became passé as the frequency of hostile takeovers diminished.
Yes, I read that Levine column as well.
As everyone should with any Levine column.
Mistake to short... more to it than just a roll-up, as always.
Pearson is a genius who maximizes shareholder value (in my opinion). I sold out of VRX after the deal was leaked just because of the part of the deal that enriches Ackman really confused/irritated me and I'm not sure of the prospects of it going through given Allergan's response.
I want the dust to settle before I get back in. But if you like value - then you like cash flow. If you like cash flow - then you should love the pro-forma single-digit tax rate. I don't think you can go wrong with J. Michael. in the long term.
So what if VRX is very acquisitive? A lot of big pharma is, just look at PFE. They have a decent track record with some wins and some losers but just because they don't like to do early stage R&D doesn't mean they are a bad company or a bad investment...
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