Re: What to Look Forward to This Week and Next
Hi everyone:
2. Monday, October 27: Allergan Release Q3 Earnings. Allergan, too, will be (surprise, surprise) having a "blowout quarter" and guidance raise. Unlike Valeant, this is on top of a prior "blowout quarter" and guidance raise the prior quarter. (Of course, as per my speculations above, the Allergan slush fund for blowout numbers has been charged up a lot better than Valeant, so Allergan can engineer two consecutive blowouts; whereas Valeant need to lower guidance one quarter before they can raise it back the next). Also, unlike Valeant, when Allergan announced (on October 10) that they are beating their own -- already raised -- guidance, they used actual numbers. They might have held a bit back, and will further beat (for a third time), even the preliminary numbers; but probably not by much (it would be hard to justify -- what information could possibly came to light after October 10 that would have dramatically increase the already finished Q3 earnings?). My expectation -- it will be a non-event.
Dan.
Some thoughts about the week thus far:
Monday (October 27) was a bit comical. Exactly as expected here, Allergan's earnings were just slightly above the October 10 guidance. (No, I'm not clairvoyant and I don't have insider information; it's just that these are the best possible credible numbers). The release was scheduled, long in advance, for
7AM EDT. This is a fair timing for an earnings release as it gives some hours before the market opens for everyone to absorb the news (in a prior post I gave a brief rant about how releasing material information during market hours is disrespectful to small investors). Even when the market is closed, there are some '
off-hours' venues where trades may take place, and new price points may emerge, but these are thinly traded and market watchers do not take these price points very seriously unless there is some dramatic news -- in which case these '
off-hours' trade may provide a preview of how investors are taking the news. What made Monday so comical was that Valeant issued a '
surprise' press release timed for
6:55AM. Yes, exactly,
6:55AM. Come on. No one just accidentally times a press release for
6:55AM (the unusual timestamp was noted by some reporters!). The press release mentioned the number
$200, but the small print took much of the content of that number away (by saying that it depends on Valeant's share price increasing -- dahh!)
So, why the strange timing? My guess is that Valeant was worried that Allergan's share price would skyrocket after the release of the '
blowout quarter' (After all, Valeant share price, after their own engineered '
blowout quarter' -- or even a numberless guidance that they are anticipating a '
blowout quarter' -- does skyrocket, at least temporarily). If Allergan share price skyrockets after announcing a '
blowout quarter', it will be a boost to the Allergan standalone claim by showing that the market values Allergan's ability to generate good earnings and is thus less interested in the Valeant merger. By uttering the
$200 figure -- a nice, round, magical, number that is sure to grab headlines -- any skyrocketing in Allergan share on Monday will be mindlessly attributed to the
$200 "
bid." -- after all, reporting that the bidding crossed a big round number is always sexier than a boring earning release whose '
blowout-ness' was previously communicated.
($200 is also the Allergan-leaked number of the minimum bid that the board will negotiate against; of course, when it comes to Valeant, if they want to get Allergan's board attention, that $200 better be in cash, since the Allergan Board has made it clear they consider Valeant shares, regardless of trading price, as trash).
The only potential flaw with this grabbing-credit-for-the-stockprice-skyrocketing ploy came from these pesky '
off-hours' trades. If the Valeant press release was timed hours before or hours after the Allergan
7AM release, and the '
off-hours' market were to do nothing after the Valeant release, but were to explode after the Allergan one; then it may well be taken that the market is seeing through and laughing at the vacuous Valeant statement, while taking the Allergan '
blowout quarter' seriously. Any subsequent Allergan share price skyrocketing during normal market hours would now be unambiguously attributed to the '
blowout quarter,' and not the
$200 '
bid.' By hitting the wire at
6:55AM, Valeant made sure that their release is read first, but that no action in the '
off-hours' market can be unambiguously attributed to Allergan's numbers.
And, the really most comical bit: After all this careful timing, credit grabbing, and gaming; the market laughed at both. Neither the '
blowout quarter,' nor the '
magical $200' did anything to move the stock. It was slightly up on the open, and slightly down on the close.
Ha. Ha.
Tuesday (October 28) was the Insider Trading court hearing date. Decision is expected within days. I haven't seen any transcripts, so I don't know what exactly happened in the hearing. I know court reporters like to try to read leanings out of judges' questions, and I don't know enough to say that it can't be done; but I have never been able to see such (unless a judge uses some sharp language -- like the now-famous 'horse choker' comment from the DE judge). We know the arguments. We know we are on uncharted legal territory. I guess we just have to wait and see what the judge has to say. I do, however, want to remind everyone that the court case is still the side show (a
soft power, in a game that is moving into the
hard power phase). A loss in the court, for either side, while a set back, is not the end. If Ackman's share are frozen, he can probably unfreeze them by posting an escrow equal to the gain he made through Insider Trade (effectively, re-purchase them at the price he would have paid if he didn't Inside-Trade). The escrow would be about $50/share (the difference between the price he paid for the shares, about $120 each, and what they were trading for immediately after the news was released, about $170 each), or about $1.5B. However, with the Allergan share price over $180, he would still be in the Black, and he can continue his battle. (And, as I noted in an earlier post, even if Ackman and Valeant are chased away through this lawsuit, this won't stop the next guy around -- who will not have the shady dealings of Valeant and PS -- from saying they can acquire Allergan and finance it by killing all R&D). Likewise, if PS wins, and Ackman's shares retain full voting rights, whatever
hard power play Allergan is planning to affect by December 18 (or, find a way to make a winning argument that they don't need to make any), would still be available.
I don't know if there is any significance to this (probably none), but I did note that Ackman and Pearson, based in the East Coast, were personally present in the Santa Ana courtroom; whereas David Pyott, based in Irvine (a walking distance from the courthouse) was not. (I suppose, if the judge wanted to ask him something, he could be there in minutes).
Dan.
