M&A watch: AstraZeneca and Allergan still in play

 

For many, the books might have seemed closed on the AstraZeneca acquisition attempt. We reported in the June issue of DDNews in the article “Pfizer loses bid for AstraZeneca” that the final offer of $117 billion by Pfizer had been rejected.

 

While Pfizer did indeed fail in that bid, and the company subsequently said it would abandon its attempt to acquire AstraZeneca, market-watchers aren’t so sure that will be the case. Many analysts have indicated that they believe Pfizer will resume the takeover attempt once a forced hiatus in negotiations, which is required under United Kingdom takeover rules, comes to an end.

 

Citing people close to the matter, the Financial Times reported in late June that AstraZeneca is working with bankers on plans to possibly sell rights to future revenue streams from certain existing drugs in a move that might make the company less attractive to Pfizer by preventing it from accessing future income related to those drugs, should it acquire AstraZeneca. Such rights sales could also generate billions of dollars in revenue that could be returned to AstraZeneca shareholders and/or be used to bolster research and development efforts, thus making them less likely to want to sell their shares to Pfizer if it resumes the takeover attempt.

 

Other options AstraZeneca might pursue, according to these inside sources, would be to pursue new partnerships and/or divest itself of non-core assets.

 

As for the Valeant-Allergan situation, there has been no break in the takeover attempt as with Pfizer-AstraZeneca.

 

As we most recently reported (as of the production of this issue) in a June 10 Daily News story on our website, “Valeant’s Allergan acquisition bid enters third month,” Valeant’s ongoing efforts to acquire Allergan Inc. continued to be stymied in light of Allergan’s then-most-recent rejection of Valeant’s merger proposal.

 

“Valeant’s revised proposal substantially undervalues Allergan, creates significant risks and uncertainties for Allergan’s stockholders and does not reflect the company’s financial strength, future revenue and earnings growth or industry-leading R&D,” commented David E.I. Pyott, chairman and CEO of Allergan, in a news release at the time. “Allergan has a track record of generating consistently robust results and value for its stockholders, and we continue to have strong momentum in our business. The investment community has recognized the revised long-term growth outlook Allergan provided on May 12, 2014, and appropriately raised valuations for a standalone Allergan. We do not believe Valeant’s proposal reflects Allergan’s growth prospects, nor does it offer sufficient or certain value to warrant discussions between Allergan and Valeant.”

 

In a letter to J. Michael Pearson, chairman and CEO of Valeant, Pyott noted that the rejection is based on a number of factors, among them that Allergan’s board has faith in the company’s organic growth and R&D engine and that the company is expecting “double-digit sales growth and earnings per share compounded annual growth of 20 percent over the next five years.”

 

In the latest move to fend off Valeant, Allergan on Aug. 1 filed a lawsuit in a U.S. district court alleging that Valeant Pharmaceuticals and Pershing Square Capital Management—the latter being the hedge fund that filed preliminary proxy materials with the U.S. Securities and Exchange Commission to solicit proxies to call a special meeting of Allergan’s stockholders as part of the takeover attempt—had “violated federal securities laws prohibiting insider trading, engaged in other fraudulent practices and failed to disclose legally required information.” The suit also names Pershing Square CEO William A. Ackman and maintains that between February and April, Pershing Square bought Allergan stock and securities worth more than $3.2 billion while being “fully aware” of Valeant’s takeover intentions.

 

“After careful consideration, Allergan decided to file the lawsuit in order to ensure that all of its stockholders have the opportunity to make decisions regarding their investment in the company based on compliant, full and fair disclosures, and to ensure that any stockholders voting on corporate matters acquired their shares in accordance with the law,” Allergan noted in the filing.

 

Valeant immediately shot back in a statement the same day of the court filing, saying that the complaint by Allergan “makes baseless claims about Valeant and Pershing Square regarding the tender offer rules.”

 

“Allergan’s true purpose in bringing the litigation is an attempt to interfere with shareholders’ efforts to call a special meeting,” said Valeant and Pershing Square. “That purpose is made clear in a separate letter Allergan sent today to the Delaware Court of Chancery.” In that letter, Valeant and Pershing Square said, Allergan noted that its bylaws “provide that the corporate secretary ‘shall consider ineffective’ any special meeting requests that are ‘made in a manner that involved a violation of Regulation 14A under the Exchange Act, or other applicable law.’”

 

They continued by saying that Pershing Square was targeting the middle of August for delivering shareholder requests to call a special meeting. “Pershing Square and Valeant are confident that this desperate attempt to delay or avoid the special meeting will not succeed,” they wrote. “The independent proxy advisory firms are expected to issue their recommendations on this matter in the near future, and this lawsuit also seeks to distract from those forthcoming recommendations.”

 

“This is a shameless attempt by Allergan to delay the shareholders’ fundamental right to call a special meeting and vote their shares,” asserted Pershing Square’s Ackman. “Allergan is threatened by our progress toward calling the special meeting. This scorched-earth approach is further evidence of the board’s and management’s entrenchment. Allergan’s determination to waste money on a baseless lawsuit against its largest shareholder demonstrates why this board of directors should be removed.”

 

“We are disappointed that Allergan continues to stand in the way of its shareholders right to voice their views on a transaction with Valeant,” added Valeant’s Pearson. “Despite Allergan’s attempted roadblocks, we remain committed to pursuing this compelling combination, which will create an unrivaled platform for growth and value creation.”