Don’t worry about stock, Valeant tells shareholders as Allergan resists bid
MONTREAL — Valeant Pharmaceuticals International sought to reassure investors about its slumping stock Tuesday, saying the shares will climb as it gears up its hostile takeover attempt of Botox-maker Allergan.
Valeant, based in Laval, said it will launch its tender offer this week for Allergan shares as deal partner Pershing Square prepares to mail out proxies this month for a special meeting of Allergan shareholders to oust a majority of its board. Pershing is also seeking legal clarity from a Delaware court about whether its effort will trigger Allergan’s shareholder rights plan poison pill. A hearing date has been scheduled for Thursday.
“We believe very strongly that the support is there” from Allergan shareholders for a merger, Valeant chief financial officer Howard Schiller said Tuesday. “Once there’s clarity on the path to completing this deal, the probability of success will go way up and our stock price ought to go way up as well.”
Valeant shares closed up one per cent to $118.87 US on the New York Stock Exchange, breaking a streak of 10 straight daily declines. The stock remains below its price before Valeant launched its bid for Allergan on April 22. That means its sweetened offer of 0.83 Valeant shares and $72 per share in cash is worth $170.21, less than the $180 investors have told Valeant is needed for the deal to go through.
“Yes, the see-through price is now less than $180. But that’s just a function of sort of all the noise I think Allergan’s making right now,” said Valeant chief executive Mike Pearson. “Once a special meeting date is set, the stock prices of both companies are going to go up.”
There is no need at the moment to adjust Valeant’s current offer, he said.
Schiller said Valeant is confident that Delaware law will uphold the rights of shareholders. New York-based Pershing, which holds 9.7 per cent of Allergan shares, needs the support of stockholders holding 25 per cent of the shares to call a meeting.
Allergan could delay a special meeting until November. Its board, advised by external consultants including investment banker Goldman Sachs, has rejected Valeant’s bid and declined to engage in talks.
Further, Allergan has tried to undermine the value of Valeant shares by repeatedly calling into question its acquisition-heavy business model and cost-cutting focus.
In its latest attack on Valeant Monday, Allergan released its correspondence with two Morgan Stanley investment bankers who suggested Allergan go harder in its assault on Valeant’s prospects and calling Valeant “a house of cards.” Less than a month later, Valeant hired Morgan.
Pearson confirmed that Morgan Stanley’s Robert Kindler was now one of its advisers and dismissed criticism of Morgan’s trying to play both sides. He said every investment bank wants a piece of big mergers and acquisition deals and makes pitches to try to get involved.
“They have a great set of advisers, we have a great set of advisers. But in the end of the day, this is going to a shareholder vote and that’s what matters,” Pearson said. “The rest is noise.”
More than 50 per cent of Allergan’s shares have traded since April 22 and are now in the hands of hedge funds and arbitrageurs who want to see a deal get done, Schiller said.
Pearson took a measured approach to Valeant’s critics, including short-sellers. On the call, he rectified the false information he said was being circulated about Valeant and clarified a number of issues including how the company handles its acquisition accounting.
Valeant believes it can generate between five per cent and 10 per cent annual organic growth in the years ahead without Allergan, Pearson said. As costs related to restructuring and acquisitions decline, there will be a greater convergence between GAAP and non-GAAP earnings.