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Fighting a hostile takeover battle, in a case where increasingly support seems to be evenly divided amongst the bidding and defending parties, can then end up something like a war of attrition – with the two sides duking it out until one or the other licks its wounds and cedes the day.
The current takeover war, for that is what it looks like right now, is between defending pharmaceutical company Allergan, the California based producer of Botox, and the Quebec Based serial acquirer, Valiant Pharmaceuticals.
The protean antagonists are Valeant’s CEO Mike Pearson, ably supported by activist investor Bill Ackman and his hedge fund Pershing Square Capital Management who hold a 9.7% position in Allergan already themselves, and David Pyott who is the savvy Chairman and CEO of Allergan.
Rather than buckle at the first sign of Valeant’s aggressive intent, nor even when Valiant twice raised its bid and demanded conversations with its Board of Directors, Allergan appears to have been running a superbly aggressive investor relations campaign to do its best to derail the bid, in addition to the standard legal defences which have included institution of a poison pill.
As a big portion of the Valiant proposal, still some 60%, is to be satisfied by the issue of Valeant stock, the question will be decided eventually, one way or another, by whoever best wins over the hearts and minds of major institutional investors as to their competing visions for the future.
While the current offer on the table from Valiant and Bill Ackman is currently worth around US$51 billion Allergan has again rejected it firmly, after due consideration, and instead vigorously attacked the motives, capabilities and business model of Valiant itself.
In doing so the spotlight has shifted, perhaps uncomfortably so, to potential deficiencies is of the bidder rather than those of the defender, which is a little unusual as predators are known for seeking out weak victims. Allergan has also determinedly provided an aggressive roadmap of its own for the future, one based on continued successful R&D expenditures, and substantial projected financial growth in its top and bottom lines.
Valiant’s shares dropped somewhat during the week to close at US$119.60, thus reducing the value of its combined cash and stock bid for Allergan to just US$171.27 per share, or in total just over US$51 billion. Allergan’s own shares closed Friday at US$161.79, which is still not far off US$10 per share below the current value of the Valiant bid therefore.
Well, if there are signs your bid is going wrong and it seems you can’t win with a continued frontal assault, one thing an attacker can do is create a diversion and attempt to outflank, or even undermine from below, an opponent, and this is what Bill Ackman is perhaps now attempting.
Acquisition of control of a company always ends up by unseating its board of directors, and then replacing them with those who represent the winner’s interests. If this is not done by acquisition of a majority control position, either through hostile means or through an agreed takeover offer, it can also be done simply by waging a proxy battle for control at the company’s Annual General Meeting – something activist investors often try to accomplish as it is, in any case, usually the cheapest way to get something done and with much less investment risk.