Chronology of the Allergan-Valeant Hostile Takeover Battle
Hi everyone:
In the spirit of the upcoming new year, I thought I'd write a chronology of the Allergan-Valeant hostile takeover battle; with the added twist that we can look forward in time from many of the events. I thus added a lot of "as we now know" sentences (sometimes quite repetitively, as new events in individual threads are added).
For context and market reaction, after each event I listed the Allergan and Valeant share price. During the time period when there was a formal offer from Valeant, I also listed the Deal Value at the then-in-effect formal offer and the premium (positive or negative) that the offer represent over the Allergan market share price. During times when Valeant had a quantitative promise to raise their offer, but not yet formalized, I listed the deal value and premium for the promised offer separately. After the Actavis deal was announced, I also listed the deal value and premium of the Actavis deal.
To the extent that share prices are indicative of market odd-making, a negative premium indicates that the market is not taking the current offer seriously (either it expects that it will be raised, or that the target is more valuable without the deal); a large positive premium indicates diminished expectation that the deal will happen; and a small positive premium indicates a belief that the deal is realistic and likely. As the ebbs and flow of the battle progressed, it is always instructional to look at the premium as an unvarnished metering of what the market is thinking are the odds of deal happening at each time point.
ACT I: The Setup
February 6, 2014: Valeant gives the green light for the run on Allergan. It holds multiple Board meetings, agrees to commit $75M to the soon-to-be-formed "PS Fund 1" (PSF1, controlled by Ackman's Pershing Square fund), and hires financial and legal advisors. It is these actions that Allergan will later argue constituted "substantial steps" to commencing a "Tender Offer" (legalese for Hostile Takeover attempt) for Allergan; and therefore any share buying by anyone tipped by Valeant afterward would constitute illegal Insider Trading. The $75M is an important number -- it is the most Valeant can invest in a competitor (Allergan) without having to make anti-trust disclosures.
AGN=117, VRX=134
February 11: Pershing Square (PS), controlled by Ackman, and Valeant form PSF1. This is the legal entity that will acquire Allergan shares. The $75M Valeant invested buys it 3% of PSF1, with PS investing the other 97% (about $3.1B).
AGN=122, VRX=141
February 12 - April 10: PSF1 buys just under 5% of Allergan on the open market. The purchase pace is fast enough to push up Allergan share price, but not so fast as to clue the market that something was going on. As it turned out, this was a period of overall drop throughout the Pharma sector, so AGN share price was actually dropping during that time -- just not by as much as it would have otherwise.
AGN=116, VRX=123
April 11: PSF1 crosses the 5% ownership threshold. This is an important threshold. By S.E.C. rules, whenever someone crosses 5% ownership, they have 10 days to publicly disclose that fact and declare their intentions.
AGN=121, VRX=119
April 12 - April 21: During the 10 days between when PSF1 crossed the 5% and when they will have to publicly disclose it, they buy Allergan shares as fast as they can, no longer worrying about if it will clue the market or push up share price (which it does). They buy a total of 4.7% of Allergan shares during those 10 days (which, together with the 5% already purchased over the prior 2 months, bring their total ownership to 9.7%).
AGN=142, VRX=126
ACT II: A Very Aggressive "Friendly" Offer
April 22:
- PSF1 publicly discloses that they now own 9.7% of Allergan shares and that they have a deal to help Valeant buy the company.
- Valeant offers Allergan $48 cash + 0.83 Valeant shares for each Allergan share. This value Allergan (at day closing share prices) at $160/share. Allergan closes $4 above that -- indicating market expectation that the price will rise (the market was quite correct!). Valeant claims that they want a friendly deal, but no one think there is any chance of that happening. Valeant asserts that the combination will produce $2.7B in synergies, mostly through laying off most of Allergan's non-client-facing employees and through a tax inversion.
- Allergan Board adopts a Stockholder Rights Plan (commonly known as a "poison pill") where if any shareholder, or group of colluding shareholders were to come to own more than 10% of the shares, they will effectively lose half their shares (by giving everyone else, for nearly free, one new share for each one they already own).
- This is the day that is considered the start of the battle.
- The Wall Street Media is awed, wowed, and mesmerized by the audacity, magnitude, technique, and implications of this takeover attempt. Ackman dominates the airwaves.
- AGN=164, VRX=135, Deal=160 (Premium = -4)
April 28:
- First Seeking Alpha article, by Uncommon Profit Investor, pointing out that the Valeant business model is unsustainable and that Allergan is too strong for Valeant to bite. As we now know, Seeking Alpha nailed it on both accounts. In my opinion, this is the article that opened the floodgate of negative publicity against Valeant. For one week the Wall Street media was mesmerized by the Valeant proposal and the unprecedented PS deal, until Seeking Alpha -- in the first of many articles -- brought back a sense of reality. After that, the media was mostly negative about Valeant as a company (although most articles still considered the deal viable -- sometimes even inevitable -- right up to the point it collapsed).
- Shire jumps 5.5% on rumors Allergan will bid to buy it to thwart Valeant. As we now know, Allergan was interested; but was outbid by AbbVie and was disciplined enough not to overbid itself. As we now know, both AbbVie and Shire lived to hugely regret outbidding Allergan when their deal collapsed after treasury started cracking down on Inversion deals (see more on that later).
- AGN=166, VRX=134, Deal=159 (Premium = -7)
May 7: Allergan reports strong 2014Q1 earnings. Earnings beat analysts consensus and sales were in line with consensus, showing 13% growth from the prior year. Raise guidance for the year to above analysts consensus. This was likely not an engineered event (unlike Q2 and Q3 earnings that, in my opinion, were boosted using legal accounting tricks) since Q1 was completed before the Valeant offer was made public (these accounting tricks are hard -- but not entirely impossible -- to affect after a quarter closes).
AGN=166, VRX=133, Deal=158 (Premium = -8)
May 8: Valeant announce weak 2014Q1 earnings. Earnings slightly beat analysts consensus, Sales were below estimate. Shares fall 2%. Organic growth was only 1%.
AGN=163, VRX=131, Deal=157 (Premium = -6)
May 12: Allergan formally rejects Valeant offer. The rejection comes out swinging at Valeant as an unsustainable business. It also states that the offer substantially undervalues Allergan. As we now know, 6 months later, the board was able to sell the company for $219 -- 40% above the Valeant deal value -- so it was right, the offer did substantially undervalue Allergan.
AGN=160, VRX=130, Deal=156 (Premium = -4)
May 13: Valeant and PS files a proxy statement with the S.E.C. to conduct a "non-binding shareholder referendum" asking shareholders to voice their opinion that Allergan should negotiate with Valeant in good faith. The idea was that once the voice of the shareholders is heard -- even if on a non-binding basis -- the Allergan board would be cowed into opening negotiations with Valeant. As we now know, the referendum concept went nowhere. No shareholder wanted to take the risk that participating in the referendum would trigger the poison pill, so eventually they dropped the concept. As we also now know, the Allergan board wasn't going to be cowed by anything; so it wasn't going to work anyhow.
AGN=161, VRX=130, Deal=156 (Premium = -5)
May 15: Chanos, short investor who famously shorted Enron when everyone else thought they were a great, announces that he is shorting Valeant.
AGN=159, VRX=124, Deal=151 (Premium = -8)
May 19: Ackman accuses Allergan Board of conflict of interest (not wanting to lose their jobs) and Fiduciary failures. Allergan hits back saying they are well aware of their fiduciary duties. As we now know, after the Actavis deal is signed, for the rightly priced offer, they were quite willing to lose their jobs.
AGN=160, VRX=127, Deal=153 (Premium = -7)
May 20: Allergan publishes over 500 letters from physicians and other healthcare professionals opposing the Valeant deal.
AGN=162, VRX=131, Deal=157 (Premium = -5)
May 23: JP Morgan survey shows that Allergan investors are looking for $180-200/share to agree to sell to Valeant. (My opinion) To a large extent, this range became the zeitgeist of the deal: Deal valued below this threshold were dismissed, offers within that range were considered viable, and anything above it was treated as a shoe-in. As readers of my postings know, I think Valeant never had much of a shot of winning; but if they ever did have one, I think, an all-cash offer of $190 (the midpoint of the range) at this point in time just might have worked (and be prepared to negotiate toward $200). Of course, to make an all-cash offer they would have needed to find some deep-pocketed investors to finance the deal (possibly through a secondary offering of their own shares).
AGN=167, VRX=133, Deal=158 (Premium = -9)
May 27: Allergan files investor presentation showing Valeant is unsustainable.
AGN=165, VRX=130, Deal=156 (Premium = -9)
May 28:
- Valeant raises the bid for Allergan by $10 to $58 cash + 0.83 Shares + DARPin CVR (Note: My Deal value and Premium calculations do not include the CVR -- the general market reaction, which I agree with, is that the CVR is worthless or nearly so). Valeant promises that this will be the last unilateral bid. Unless Allergan starts negotiating, they are not going to be bidding against themselves. As we now know, it took them all of two days to bid against themselves again. The market and media are largely derisive of the smallness of the raise. At $164, it fell well below the $180-$200 the JPM survey a week prior said was required.
- Allergan tumbles $7 on the disappointment in the smallness of the raised bid. Ironically, the combined effect of the raise (as small as it was) and Allergan price drop causes the Premium to go positive for the first time since the deal was proposed. As we now know, the Premium stayed positive for most of the remaining duration of the battle.
- Valeant sells a portfolio of skin health products to Nestle for $1.4B. As we now know, the portfolio was rapidly collapsing, and Nestle ended up paying good money for product lines that almost disappeared by the time they took delivery. Valeant would later, lamely, explain their lowered guidance on the sale of this portfolio. As we also now know, with the Nestle divestment, failing to acquire Allergan, and deciding to stop acquisitions for the time being; Valeant actually ended the year smaller than it started -- so much for the biggest acquirer in all of Pharma.
- AGN=156, VRX=128, Deal=164 (Premium = +8)
May 30: Two days after promising not to bid against themselves, and before Allergan responded to their last bid (not that the response had any chance of being positive), Valeant raised their offer again by another $14 to $72 cash + 0.83 shares. PS agreed not to take the raised value (they stand to make plenty of money anyway -- since they bought all their shares at pre-announcement prices) and to take only shares (no cash); so this offer is really just for the other 90.3% shareholders. This time, the market and media responded that this was a "credible" offer -- at the bottom of the range that may be acceptable to shareholders. For the first time, the Valeant Deal Value was within (even if just barely) the JPM range. Arguably, this is the point where the Valeant offer started to be taken seriously. Technically, this was still a friendly offer -- directed at the board, not the shareholders -- but this was about to change.
AGN=167, VRX=131, Deal=181 (Premium = +14)
ACT III: Full Throttle Hostile
June 2:
- Valeant announces that it will launch a hostile Exchange Offer for Allergan.
- Ackman announces that he will call for a special shareholder meeting to oust 6 directors. Per Allergan Bylaws, he will need holders of 25% of Allergan shares to support his call for such a meeting.
- These two actions finally puts away the fiction of a friendly deal. From here on, it is unambiguously a hostile takeover attempt. As such, the race is now officially on. Defending Allergan will be trying to use as many delay tactics as it can to buy the time to develop superior alternative options.
- AGN=172, VRX=134, Deal=183 (Premium = +11)
June 10: To the surprise of no one, Allergan Board again reject the Valeant offer.
AGN=163, VRX=126, Deal=177 (Premium = +14)
June 13: Ackman sues Allergan over the Poison Pill. He is having trouble gathering holders of 25% of the Allergan shares for his Special Shareholders' Meeting request because everyone is afraid that Allergan will trigger the Poison Pill on them, and Ackman telling them that a Poison Pill can't be used to block a shareholder meeting isn't convincing enough to them. They want to hear this said by the Allergan Board or by a judge. Since the Allergan Board won't say it, Ackman is asking the Delaware Chancery court to say so. As we now know, the suit was settled two weeks later largely on Ackman's terms; Allergan agreed that calling for a special shareholder meeting does not trigger the poison pill.
AGN=162, VRX=120, Deal=172 (Premium = +10)
June 16: Allergan releases email from Kindler, head of M&A at Morgan Stanley (advising Valeant), referring to Valeant as a "House of Cards," when he was trying (unsuccessfully) to win Allergan's business. The email itself, and it's release were more comic-relief than significant events; but they did come to symbolize the intense hostility of this saga -- even by the already bitter standards of hostile takeover battles.
AGN=159, VRX=118, Deal=170 (Premium = +11)
June 17: Valeant investor conference call to rebut Allergan claims about Valeant.
AGN=161, VRX=119, Deal=171 (Premium = +10)
June 18: Valeant formally launches the Tender Offer. The offer is the same as the one offered Allergan 18 days earlier (actually slightly weaker, because it took out the DARPin CVR -- but promises to put it back in if Allergan agrees to go friendly) of $72 cash + 0.83 Valeant shares. It formally expires August 15 (but was later to be extended to the end of the year). As we now know, this was a fateful action, as it enabled the Insider Trading lawsuit filed 42 days later. If Valeant had never launched a formal Tender Offer, it would have been very difficult -- maybe impossible -- for Allergan to prove that Valeant intended to do so all along (how can you prove that someone intended to do something all along if they never actually do it?). Valeant could have simply allowed Ackman to proceed with his efforts to call a special shareholder meeting, oust the anti-Valeant Board, install a pro-merger board, and then negotiate a friendly deal like they have been saying all along they wanted. No hostile takeover bid, no Insider Trading. (As we now know, it would have never transpired that way, the Allergan Board was able to pre-empt Ackman's special shareholder meeting with the Actavis deal; but Valeant didn't know that back in June). So why did Valeant take this action -- which they knew created a major Insider Trading litigation risk? That's a matter for speculation. One possibility, speculated by the media, is that major Allergan shareholders told Valeant that they will only take their offer seriously if it is formalized. In any event Valeant and PS must have really trusted that the contractual machination (where they claim to be co-bidders) would survive judicial review (it didn't). The Premium has now entered single-digit-positive territory, meaning the market is taking the Valeant proposal quite seriously (even though Deal Value stayed mostly below the JPM Range of 180-200). It will stay in that territory until Actavis entered the mix.
AGN=162, VRX=118, Deal=170 (Premium = +8)
June 23: Valeant posts rebuttal to Allergan claims of Valeant business model being unsustainable.
AGN=165, VRX=121, Deal=172 (Premium = +7)
June 25: Paulson & Co. builds 2% position in Allergan. He will later grow it to 4.3%. He publicly supports Ackman. Paulson also owns a sizable investment in Shire (which later imploded).
AGN=169, VRX=126, Deal=177 (Premium = +8)
June 26: 7 US Senators ask the FTC and Justice Department to review the Valeant offer for Allergan.
AGN=171, VRX=127, Deal=177 (Premium = +6)
June 27: PS and Allergan settle law suit. Allergan agrees that the Poison Pill doesn't apply to special shareholders' meetings.
AGN=174, VRX=129, Deal=179 (Premium = +5)
July 1: Actavis closes $28B friendly deal to buy Forest Labs. Head of Forest Labs, Saunders, becomes Actavis CEO. As we now know, this event played a crucial role in the final outcome. It created a company large enough to be a White Knight to Allergan. As we also now know, Actavis didn't wait very long after closing the Forest Lab deal to go shop for an even bigger acquisition.
AGN=169, VRX=126, Deal=177 (Premium = +8)
July 7: PS names nominees to Allergan Board (to replace the ones they want to oust).
AGN=166, VRX=123, Deal=174 (Premium = +8)
July 11: Ackman files a proxy statement with the S.E.C. which formally begins his efforts to gather holders of 25% of Allergan shares to call for a Special Shareholders' meeting where they will vote to oust 6 Board members.
AGN=166, VRX=120, Deal=172 (Premium = +6)
July 14:
- New Allergan investor presentation bashing Valeant is posted.
- Valeant notifies F.T.C. of it's intentions to merge with Allergan.
- AGN=167, VRX=122, Deal=173 (Premium = +6)
July 18:
- AbbVie agrees to buy Shire for $55B (about $91/share) in an inversion deal. This knocks out a potential defense for Allergan -- to buy Shire and become too big for Valeant to swallow. Apparently, Allergan wasn't willing to outbid AbbVie. As we now know, the treasury department cracked down on Inversions causing AbbVie to walk away from this deal and pay a hefty breakup fee (but still cheaper than going through with a deal priced to value the inversion benefit).
- Valeant files new Investor presentation, previewing it's upcoming "blowout quarter" earning report.
- AGN=167, VRX=121, Deal=174 (Premium = +6)
July 21:
- Allergan release outstanding 2014Q2 numbers
- Sales up 16% from 2013Q2
- Earnings up 24% from 2013Q2
- Allergan ups the guidance for 2015 and 2016
- New guidance: $8.30 and $10/share, respectively
- Prior analysts consensus: $6.87 and $8.18/share
- Allergan announce major cost-cutting restructuring
- Will save $475M/year
- 13% layoff -- including 1500 employees and 250 vacant positions
- 3 sites closed (Carlsbad, Santa Barbara, NJ).
- This effectively gets Allergan more than halfway the benefits of the Valeant savings without killing the most promising R&D pipelines. (Valeant promised $2.7B in "synergies" financed by cutting substantially all R&D. This much cutting is unrealistic and probably non-compliant with legal requirements as a drug seller, so maybe they could have cut, at most, say, $2B. However, Allergan shareholders will only have owned about 45% of the merged company, so only, say, $900M of the savings would have accrued to Allergan shareholders. By cutting $475M, Allergan is already more than halfway there).
- Positive reception in the analysts, media, and shareholders forums
- Valeant files official complaint with S.E.C. and Quebec authorities saying that Allergan is lying about them (to my knowledge, nothing ever happened from those complaints).
- AGN=171, VRX=126, Deal=177 (Premium = +6)
July 31:
- Valeant release weak 2014Q2 numbers
- Earning of $1.91 is $.05 below analysts forecast of $1.96
- Same store organic growth at 4%
- Valeant downs the guidance for 2014 (now half finished already)
- New guidance: $8.00/share
- Prior analysts consensus: $8.67/share
- Valeant downs the guidance for 2015
- Not counting an Allergan deal, but counting on $5B acquisitions
- New guidance: $9.65/share
- Prior analysts consensus: $10.42/share
- Share price is crushed -- down 8%
- I speculated that Valeant swallowed more poison than necessary -- lowering the 2014 guidance farther than needed so they can set the stage for a "blowout quarter" when they beat expectations in 2014Q3 -- the last reported earnings before the Allergan Special Shareholders Meeting. As we now know, Valeant did claim to have a "blowout quarter" in 2014Q3, and raised guidance at that point (but not by as much as the 2014Q2 lowering -- so the guidance is still below earlier promises).
- AGN=166, VRX=117, Deal=169 (Premium = +3)
ACT IV: Allergan Defenses Shift to High Gear
August 1: Allergan files Insider Trading lawsuit against Valeant. As we now know, the suit didn't stop PS from voting it's shares (the Actavis deal did that), but it did reach a point where a Federal Judge found a good likelihood ("Serious questions to the merits") that Valeant and PS committed Insider Trading, and thus paved the way for subsequent Class Action Lawsuits.
AGN=166, VRX=118, Deal=170 (Premium = +4)
August 5-6: Two major shareholder advisory firms (Glass Lewis and ISS) side with Valeant and advise clients to back a special shareholder meeting.
AGN=157, VRX=110, Deal=163 (Premium = +6)
August 8: Federal court set August 20 hearing date for expedite motion on Insider Trading case. As we now know, the judge initially rejected the expedite motion, saying there is no urgency; but invited Allergan to come back when there is. Allergan did come back, and the judge did agree to expedite a hearing on granting an injunction against the PS shares (that injunction petition ended up rejected as well).
AGN=157, VRX=109, Deal=162 (Premium = +5)
August 14: Leaked news that the S.E.C. is looking into whether Ackman committed Insider Trading.
AGN=156, VRX=111, Deal=164 (Premium = +8)
August 15: Valeant formally extends the expiring-today Exchange offer to buy Allergan shares through December 31. It announces that only about 4% of Allergan shares have been tendered.
AGN=158, VRX=112, Deal=165 (Premium = +7)
August 18: Allergan appoints Hindman, company veteran, as new CFO.
AGN=156, VRX=110, Deal=163 (Premium = +7)
August 19: Salix shares jump 16% on leaks that Allergan is interested in buying them to fend off Valeant. As we now know, Allergan uncovered evidence of accounting fraud when they performed due diligence on Salix, and had the discipline to walk away. In all likelihood, ironically, at the point that Salix shares are jumping in reaction to the Allergan buyout interest, Allergan has already walked away.
AGN=162, VRX=114, Deal=167 (Premium = +5)
August 20:
- Leak that Allergan interest in Salix is now dormant. We now know that the reason was Allergan's discovery of accounting fraud in Salix.
- Hearing in CA Federal court of Allergan request to expedite the Insider Trading case
- AGN=163, VRX=113, Deal=166 (Premium = +3)
August 21: Federal Judge denies Allergan request to expedite the Insider Trading lawsuit against PS and Valeant saying that there is no urgency, and inviting Allergan to come back if, in the future, there is more urgency. As we now know, Allergan did come back, the judge did agree to a merit hearings, and while not granting Allergan an injunction to stop PS from voting its shares, the judge did agree that there is a good chance ("Serious Questions") that they violated Insider Trading laws.
AGN=164, VRX=114, Deal=167 (Premium = +3)
August 22:
- Ackman delivers to Allergan proxies from holders of 31% of Allergan shares asking for a special shareholder meeting
- Ackman also sues Allergan in Delaware to force Allergan to schedule the meeting (he didn't bother to wait for Allergan to reject the proxy). As we now know, the suit will be settled 23 days later, largely on Allergan's term -- the special meeting will be held on the day Allergan determined.
- This is above the 25% threshold required by Allergan bylaws to call for a special shareholder meeting, but not so far above it to be sufficient in case Ackman's own 9.7% is deemed ineligible to vote due to Insider Trading, as alleged by the Federal suit filed by Allergan on August 1. As we now know, 19 days later, Ackman did reach 35%.
- AGN=166, VRX=117, Deal=169 (Premium = +3)
August 26:
- Allergan set December 18 for the Special shareholder meeting. As we now know, this date eventually became moot. A month before the meeting, Allergan agreed to a deal with Actavis.
- Allergan re-files a motion in Federal court (now that there is urgency) to block Ackman's 9.7% shares from the special shareholder meeting. As we now know, this time the judge agreed to a merit hearing, but still didn't block Ackman from voting his shares in the (soon to be mooted) special shareholder meeting.
- This now effectively set a timeframe for the endgame
- AGN=164, VRX=117, Deal=169 (Premium = +5)
August 27: Delaware judge sets expedited October 6 trial date for PS + Valeant suit (filed August 22) to force Allergan to hold the special shareholder meeting prior to December 18 (they'd like Mid-November). As we now know, Ackman gave up on his efforts to expedite the special shareholders meeting and settled 18 days later on the day Allergan set all along (December 18).
AGN=163, VRX=117, Deal=169 (Premium = +6)
September 9: Another sharply worded public letter from Ackman to Allergan board to "wake up and smell the [Valeant Deal] Coffee." As we now know, the Board was quite awake, developing multiple alternative options that truly ended up maximizing shareholder value, while Ackman sleepwalking pushing a single proposal (Valeant) that vastly undervalued the company.
AGN=166, VRX=120, Deal=172 (Premium = +6)
September 11: Ackman adds more Allergan shareholders to the Special Meeting Proxy, reaching 35% of total shares. This is significant because it means that even if his own shares are frozen, he still has over 25% of the shares calling for a special meeting. As it turned out, his shares weren't frozen after all, but the meeting became moot in any event by the Actavis deal.
AGN=168, VRX=120, Deal=172 (Premium = +4)
September 15: Allergan and Ackman settle the Delaware lawsuit and agree that the December 18 Special Shareholder Meeting date is final. The Federal case is still pending, where Allergan is requesting a federal judge to order that Ackman's share won't be allowed to vote in the Special shareholder meeting (which effectively makes them vote against his own proposals).
AGN=169, VRX=121, Deal=172 (Premium = +3)
Act V: The Endgame
September 22:
- Federal judge orders Allergan to produce un-redacted documents for Discovery. (Speculative) This event, possibly inadvertently, triggered a blizzard of events over the next week. With Allergan Board Meeting minutes -- including all it's defensive strategies -- now handed over to Valeant's attorney; Allergan pre-empted them by leaking the best parts to the Wall Street Journal. This in turn created pressure on Valeant to save it's bid, and they released a torrent of real and manufactured news they were storing up for the final run-up to the special shareholders meeting.
- Treasury department begins crackdown on Inversion deals.
- Leak (almost certainly from Allergan) that talks to buy Salix are in advance stage (At this point, the talks were probably already dead, as Allergan discovered inventory fraud at Salix; but apparently, the Allergan source didn't bother to add this little detail to the leak. I wonder if this was deliberately done, as a decoy to destruct attention from where the more promising negotiations -- Actavis -- were happening)
- Leak (from same source, presumably Allergan) that Actavis is interested in buying Allergan, but only as a friendly deal. As we now know, this was the million dollar leak. This interest eventually grew into a deal.
- Ackman threatens to Sue Allergan if it buys Salix. Little does Ackman knows that there is no Salix deal in the pipeline at all.
- AGN=166, VRX=116, Deal=168 (Premium = +2)
September 23: Leak that Pfizer approached Actavis about an inversion deal, but no current negotiations. We now know that Pfizer was snooping around in many places, but nothing (as of now) has come out of such snooping.
AGN=169, VRX=116, Deal=168 (Premium = -1)
September 24:
- Leak that Salix is in buyout talks with Actavis. Obviously, it didn't happen. I wonder if Actavis too was already disenchanted by Salix at this point (or was possibly tipped off by Allergan that there is inventory fraud to worry about, or, for that matter, that Actavis was the one who uncovered it and warned Allergan).
- Valeant up guidance for Q3, but without giving any numbers. When the numbers did come, 26 days later, the up guidance wasn't as much as the prior quarter down guidance (but Valeant shares skyrocketed on the news anyhow). I speculated that the reason for this guidance, before the quarter even finished, was to block the anti-Valeant momentum that was being created by the Actavis and Salix options (even though the Salix option, unbeknownst to Valeant, was already dead). Even with this news, the Premium has, for the first time since the current offer was made by Valeant, drifted back into negative territory (meaning the market is no longer taking the current Valeant offer seriously).
- Valeant release a letter exchange with Allergan. In the exchange, two days before the guidance upping, Valeant writes to Allergan that maybe it's time to put the bad blood behind them and start negotiating seriously. Allergan acknowledges the improved tone, but holds onto its line (ultimately proven quite accurate) that the Valeant offer grossly undervalues Allergan. Valeant responds that Allergan is being obstinate and release all 3 letters. (At the time I wrote that I think this whole exercise was a rhetorical setup by Valeant, for no real benefit in any way; seems that this is really all there was to the letter exchange.)
- AGN=176, VRX=124, Deal=175 (Premium = -1)
September 25:
- Ubben, CEO of ValueAct Capital, joins Valeant board.
- Valeant announces successful Phase III trial of VESNEO glaucoma drug, claim it will be a Billion dollar drug.
- At the time I speculated that both events were intended to restore momentum to Valeant after the leak of Allergan's non-Valeant options (Salix -- even though it was already dead -- and Actavis, very much alive). Indeed, the premium (very) briefly returned to positive territory.
- AGN=175, VRX=128, Deal=178 (Premium = +3)
September 25-28:
- 3 large Allergan institutional shareholder (T. Rowe Price with 5.4%, Jackson Square with ~2%, Pentwater Capital with 1.3% -- all in addition to PS with 9.7%) write sharply-worded public letters to Allergan board warning it against buying Salix without a shareholder vote and chiding it for not pursuing either Valeant or Actavis offers. Of course, we now know that they were wasting their tongue. The Salix deal was already very dead (there may be some timeline ambiguity about whether Allergan already walked away from Salix when the leaks first came out; but there is little ambiguity that the Salix deal was very dead by the time these letters were penned). Wasting "tongue" is not as meaningless as it may sound. Institutional investors who write public letters chastising management, risk being labeled "activist" (as PS is, properly, labeled); which means that managements do not seek out their investments, offer them board seats, or otherwise welcomes them as valued shareholders. These 3 institutions got egg on their face several times over. They broke their traditional silence to chastise a management that we now all know was doing an amazing job maximizing shareholder value, they ended up looking like morons, and they did it over a rumored deal (Salix) that was already dead at the time they wrote. Nice going, fellows!
- Allergan respond that these are just "speculation" the letter-writers are referring to. (And we now know, quite idle speculations at that).
- AGN=178, VRX=129, Deal=179 (Premium = +1)
October 3: Salix cancels tax inversion deal with Cosmo, paying breakup fee, in a move that makes it available to Allergan (or Actavis) to buy. In the context of the Salix accounting fraud and the fact that the potential for an Allergan (and probably also Actavis) deal was already dead, it is still unresolved why Salix ended the Cosmo deal. Was it the treasure inversion crackdown? Was it that Cosmo uncovered (or was tipped or was about to uncover) the fraud too? (and Salix would rather pay the breakup fee than have Cosmo publicly accuse them of lying), or maybe (as the WSJ story said at the time) Salix honestly believed that the inventory issue was a fixable matter and an Allergan deal is still possible after all.
AGN=183, VRX=130, Deal=180 (Premium = -3)
October 7: Valeant says that they will raise their bid for Allergan by $15, but the small print says that this will come from a higher Valeant share price that will surely affect once Allergan opens real negotiations with Valeant. The premium has already drifted into serious negative territory, meaning the market was no longer considering the Valeant offer competitive. Furthermore, with the formal deal, over the past several month staying mostly below the JPM range ($180-200), it was clear that Valeant needed to get back into that range. A $15 raise would, indeed, get Valeant into the JPM range (although, still very far from competitive with the kind of numbers Allergan was already secretly discussing with Actavis). As we now know, Valeant was never able to formalize this bid raise.
AGN=186, VRX=125, Deal=176, Promised Deal=191 (Premium = -10, Promised premium = +5)
October 8:
- Allergan projects outstanding 2014Q3 numbers - making it a back-to-back blowout quarters
- Sales up 17% from 2013Q3
- (non-GAAP) Earnings up 44% from 2013Q3
- Allergan ups the guidance for 2014 (now 3/4 complete)
- New guidance: $6.22 (30% above 2013)
- Prior analysts consensus: $6.87 and $8.18/share
- Allergan ups the guidance for 2015 and 2016
- New guidance: $8.60 and $10.25/share
- Prior guidance: $8.30 and $10.00/share
- Allergan share price leaves the Valeant deal offer price in the dust, and even the promised $15 raise is now mostly surpassed.
- AGN=191, VRX=126, Deal=177, Promised Deal=192 (Premium = -14, Promised Premium = +1)
October 16: AbbVie break deal to buy Shire, having learned that the inversion crackdown is taking the value out of the deal. Despite getting the breakup fees, Shire drops about 40%. Allergan was wise not to overbid for Shire. If it is still interested, it can now have Shire for a more realistic price. Paulson, a pro-Ackman Allergan shareholder, who also owns a huge portion in Shire, having lost about $1B in one day, does an about face and, with obvious self-interest, suggests that Allergan buy Shire -- no longer overpriced through AbbVie overbidding -- to fend off Valeant. As far as we now know, there were no further serious Allergan-Shire discussions from this point.
AGN=178, VRX=119, Deal=171, Promised Deal=186 (Premium = -7, Promised Premium = +8)
October 20:
- Valeant release outstanding 2014Q3 numbers
- Valeant ups the guidance for 2014 (now 3/4 complete)
- New guidance: $8.27
- Prior guidance: $8.00
- Guidance before it was lowered in 2014Q2: $8.67
- Allergan files rebuttal to Valeant earnings.
- Valeant says that they might raise their bid to over $200, but didn't say how. As we now know, like their previous $15 raise promise, Valeant was never able to formalize this bid, and even if they did it wouldn't have been sufficient to compete with Actavis. The $200 was at the top of the JPM range, and a few months ago might have sufficed; but Allergan was already negotiating way north of that number. (Also, in my opinion, the JPM range became outdated as soon as first word of Actavis interest came out. The JPM survey was in a context of no other bidder; the responding shareholders would presumably be expecting a higher number if there is a competitive situation).
- AGN=179, VRX=125, Deal=176, New Promised Deal=200 (Premium = -3, New Promised Premium = +21)
October 27:
- Allergan releases 2014Q3 number. The fact that this is a blowout quarter was already communicated on October 8. The final numbers are even better (slightly) than the already outstanding pre-released numbers.
- Valeant issues press release saying it is preparing a $200 offer. (If it really was preparing such, they never got to actually make it).
- AGN=182, VRX=131, Deal=181, New Promised Deal=200 (Premium = -1, New Promised Premium = +18)
October 28-29: Federal Court hearing on Insider Trading lawsuit. Allergan is requesting an injunction to bar Ackman from voting his shares at the special shareholders meeting.
AGN=187, VRX=130, Deal=180, New Promised Deal=200 (Premium = -7, New Promised Premium = +13)
November 3: Allergan discloses that it has received a bid from an unnamed additional bidder (everyone knew this was Actavis). From this point on, news and rumors of the Actavis negotiations were coming out with increasing frequency, intensity, and details.
AGN=193, VRX=133, Deal=182, New Promised Deal=200 (Premium = -11, New Promised Premium = +7)
November 4: Federal Court Ruling on Allergan injunction request. The judge rules that Ackman may vote his shares, but that there are "serious question" regarding his actions that have a good chance of being found by a jury to be Insider Trading.
AGN=195, VRX=134, Deal=183, New Promised Deal=200 (Premium = -12, New Promised Premium = +5)
November 7:
- Valeant sends an open letter to physicians saying, basically, that they are not as bad as Allergan and the media has made them out to be.
- Ackman writes letter to Allergan suggesting that an open bidding process be established for Actavis and Valeant to compete fairly for Allergan. Says that Valeant can pay more. As we now know, he was quite wrong. Valeant couldn't even come close to the numbers that Actavis was discussing. (Valeant admitted exactly that after the Actavis deal was announced 10 days later).
- AGN=196, VRX=126, Deal=177, New Promised Deal=200 (Premium = -19, New Promised Premium = +4)
November 10: Salix shares drop over 34% as evidence of Inventory Fraud (Channel Stuffing) is exposed. Apparently, Allergan walked away when they realized what was going on.
AGN=195, VRX=128, Deal=178, New Promised Deal=200 (Premium = -17, New Promised Premium = +5)
November 11: Zoetis, an animal health company, shares jump 9% on news that Ackman bought 10%. It is widely speculated that this will be a "Plan B" for a Valeant acquisition, in case Allergan is lost. As of today, Valeant has shown no specific interest in Zoetis. With Valeant saying they won't do any more acquisitions for a while, this "Plan B" seems moot.
AGN=195, VRX=130, Deal=180, New Promised Deal=200 (Premium = -15, New Promised Premium = +5)
November 17: Allergan and Actavis jointly announce merger deal. Each Allergan share will trade for $129 cash + 0.37 ACT shares. The deal is valued, as of the last trade before it was announced, at $219. Valeant concedes that it can't top that.
AGN=209, VRX=137, Valeant Deal=186, New Promised Valeant Deal=200 (Premium = -23, New Promised Premium = -9), ACT=248, ACT Deal=221 , (ACT Premium= +12)
Postscript
November 18: Actavis share price skyrockets.
AGN=213, VRX=142, ACT=270, ACT Deal=229 , (ACT Premium= +16)
December 9: Valeant says it is abandoning it growth by acquisition strategy for the time being.
AGN=212, VRX=141, ACT=264, ACT Deal=226 , (ACT Premium= +14)
December 16: Class Action Lawsuit filed against PS and Valeant for Insider Trading.
AGN=206, VRX=137, ACT=257, ACT Deal=224 , (ACT Premium= +18)
Today (December 26):
AGN=212, VRX=141, ACT=257, ACT Deal=224 , (ACT Premium= +12)
Happy New Year, everyone!
Dan.
