On November 7, 2013, the Chief Executive Officer of Party A contacted the Company’s then Chief Executive Officer, Carolyn Logan, and requested a meeting with Ms. Logan [to express interest in acquiring Salix].
[...]
On March 13, 2014, [...] the Board unanimously determined not to provide Party A with access to due diligence materials at the time.
[...]
So, even before Valeant came along (but as we now know, the Allergan Board was concerned about Valeant for a long time before the launch of the hostile take over attempt), Allergan was already asking Salix for due diligence; but Salix wasn’t interested. (From text not reproduced here, the reason Salix was not interested is because they wanted to do an inversion – before that concept blew up in their face).
On June 27, 2014, the Chief Executive Officer of Party A contacted Ms. Logan with a request to meet. Ms. Logan scheduled a meeting with the Party A Chief Executive Officer to be held on July 29, 2014, which was discussed with the Board on July 7, 2014. At this meeting, the Party A Chief Executive Officer made an oral offer to acquire the Company at an all cash price of $180 per share, subject to Party A’s satisfactory completion of a due diligence review of the Company
[...]
Ok. Valeant is knocking, and Allergan is getting serious about Salix; making an oral offer. It is worth noting that Pyott, with no due diligence, without knowing about the accounting fraud, just based on doing his homework from public sources only, making an opening oral offer, nailed the valuation right on the head – with his price ($180) almost exactly the same as Endo, with a lot more information, is offering now.
On August 13, 2014, [...] the Board unanimously determined that Ms. Logan should advise Party A’s Chief Executive Officer that the $180 per share offer was insufficient to form the basis for discussions between the parties, including the commencement of due diligence by Party A, but that the Board would review any improved offer [...].
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On August 20, 2014, the Party A Chief Executive Officer called Ms. Logan to communicate an increase in Party A’s proposal from $180 to $200 per share in cash. The Party A Chief Executive Officer advised that Party A’s intention was to be in a position to complete due diligence and announce a transaction within three weeks. [...]
On August 22, 2014, [...] After a detailed discussion, the Board unanimously authorized (i) Ms. Logan to contact the Party A Chief Executive Officer with a counter-offer at $210 per share, (ii) management to agree, subject to negotiation, and Board approval, of a definitive merger agreement, to an all-cash transaction at $205 per share or more (including agreeing to a period of exclusive negotiations at such price) and (iii) management to permit Party A to conduct due diligence on the Company.
[...]
On August 26, 2014, the Party A Chief Executive Officer advised Ms. Logan that the Party A Board of Directors had initially viewed Party A’s $200 per share offer as its best and final offer, but that in exchange for a three week period of exclusivity, it would increase its offer to $205 per share, in cash. The Party A Chief Executive Officer noted that this offer was Party A’s best and final offer. Later that day, the Board [agreed].
[...]
We have a deal. Allergan will go to $205, as long as the due diligence is good. Pyott’s initial sense that the company is worth $180 was, we now know, dead on target; but their books were implying that they are worth $205. So, Pyott basically said that if your books check out, I’ll pay you the $205, if not; we will see…
During the course of the next seven days, Party A conducted its due diligence review of the Company concurrently with the negotiation of the definitive merger agreement.
On September 4, 2014, Party A raised questions regarding the data provided by the Company with respect to in-channel inventory and advised the Company that Party A needed to conduct additional due diligence.
On September 15, 2014, Party A advised the Company that it had become concerned with the levels of wholesaler inventory of the Company’s key products in the distribution channel. Further discussions regarding the potential transaction ceased while Party A further reviewed this matter.
On September 22, 2014, The New York Times reported that Party A was in discussions to acquire the Company.
[...]
So, even before the story first leaks, Allergan is already beginning to back off Salix
On September 23, 2014, the Party A Chief Executive Officer advised Ms. Logan that Party A was decreasing its proposed purchase price to acquire the Company to $175 per share as a result of its review of wholesaler inventory levels of the Company’s key products.
Right back to where Pyott was before the too-smart-for-their-own-good Salix thought that he is so desperate as to overbid – actually a bit lower.
Also on September 23, 2014, the Chief Executive Officer of Party B contacted Ms. Logan to express Party B’s interest in commencing discussions for Party B to acquire the Company.
On September 24, 2014, [...] The Board discussed Party A’s revised proposal and Party B’s invitation to discuss a potential acquisition of the Company by Party B. Following a detailed discussion, the Board unanimously determined to advise Party A that it was not willing to discuss a transaction at the substantially lower offer price, with the goal of compelling Party A to increase its offer. The Board also determined (with Mr. Chappell dissenting) to authorize management to respond to Party B’s invitation to discuss its potential acquisition of the Company in order to obtain additional information, including Party B’s proposed purchase price and anticipated timeline for entering into a transaction. Mr. Chappell expressed the view that the Company should instead refocus on the Company’s standalone plan if discussions with Party A were potentially going to be discontinued.
Following the Company’s response to Party A, Party A did not make any revised proposal or initiate any further contact with the Company until later contacted by the Company, as more fully described below.
On September 24, 2014, several media outlets reported on Party B’s interest in a potential acquisition of the Company. During intra-day trading, the Shares achieved their all-time high trading price of $172.98 per share.
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Salix is so sure Allergan is desperate for a transaction that they basically told Allergan that they don’t care about the failed diligence; they want something closer to the $205 discussed earlier. Allergan walks away. Actavis comes into the picture on the same day Allergan walks. This detail is a bit of a new twist. Previously, it appeared that Salix was talking with Allergan and Actavis simultaneously. However, it seems that Actavis gracefully waited for Allergan to walk away before budding in. Score a point to Saunders for being classy. My earlier speculation that Allergan may have tipped Actavis about the inventory issue at Salix is somewhat mooted by this timeline, but in a way it is also accurate. Since Actavis did their due diligence after Allergan walked away, it is essentially a certainty that they would have asked why Allergan walked away and that Salix would have been compelled to answer truthfully.
Another loose end that this time line is tiding up concerns the angry shareholders letters trying to stop Allergan from buying Salix without a shareholder vote. I earlier estimated that by the time these letters were written, Allergan has already walked away from Salix, and the letter writers were “wasting their tongue.” This is now confirmed. The poison letters were dated between 9/25 and 9/27, whereas Allergan walked away on 9/24.
On September 30, 2014, Party B delivered a letter to the Company setting forth a preliminary proposal, subject to its completion of a satisfactory due diligence review of the Company, to acquire the Company at a price range of $178 to $185 per share, with 60% to 70% of the consideration to be paid in cash and the remainder in Party B stock.
On October 1, 2014, [...] After a detailed discussion, (i) the Board determined (with Mr. Chappell dissenting) to authorize management to allow Party B to perform due diligence and negotiate with Party B with respect to its proposal and (ii) the Board unanimously agreed to authorize Company management to contact Party A to ascertain whether Party A remained interested in a potential transaction.
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On October 9, 2014, the Chief Executive Officer of Party B advised Ms. Logan that Party B would not be proceeding with a transaction, citing concerns with the transaction from an antitrust perspective.
Hmm. This I haven’t seen before. So Actavis walked away because of Antitrust, not inventory. Hmm. Hmm. Since Actavis was talking $178-185 (about same as Allergan’s numbers), presumably they already factored the inventory issue into their math. Walking away due to antitrust is not unheard off, but not very common either. In general, the products of a company aren’t exactly a secret. If the overlap of the prospective acquirer and target is so large as to make the antitrust issue a deal killer, it would presumably be known beforehand. Due Diligence is an expensive and disruptive process; not to be engaged in if a simple product charts comparison would have already established that the deal is undoable due to antitrust. The big exception is if there is something really big, and antitrust-triggering, in the pipeline (and thus a secret, until disclosed during due diligence). So, I guess this is the case. BTW, if the pre-Allergan Actavis was already antitrust-constrained from buying Salix, it is a near certainty that the post-merger Actavis won’t get into the bidding for Salix.
On October 13, 2014, the Chief Executive Officer of Party A advised Ms. Logan that Party A would not be proceeding with a transaction at the time, but may re-approach the Company after the Company’s announcement of third quarter earnings.
Translation: “Stop pestering us about buying you anywhere near the $205 we mentioned before we discovered your inventory problem, and stop pretending it’s not a big deal, and, despite what you may have been reading in the Wall Street press, we are not nearly as desperate as you think we are. So, here is what we are going to do. We will wait patiently until you report your Q3 numbers. You will have to admit your inventory problem, your share price will crash, and then we will be able to again talk, with more realistic valuation numbers (and you shall regret not taking out $175).
During the period following Party A’s expression of potential concerns regarding the levels of wholesaler inventory of the Company’s key products in the distribution channel, management, under the direction of the Board, engaged in a detailed review of the facts and circumstances with respect to the inventory levels of the Company’s key products, including whether such facts and circumstances raised any significant accounting concerns or impacted the Company’s reported financials.
On October 14, 2014, the Board directed the Audit Committee of the Board (the “Audit Committee”) to conduct a review (with outside counsel retained by the Audit Committee) with respect to inventory-related disclosures and related matters.
On November 6, 2014, in connection with the release of the Company’s financial and operating results for the quarter ended September 30, 2014, the Company announced wholesaler inventory levels for certain of its key products that were in excess of the amounts indicated by the Company’s Chief Financial Officer on previous investor conference calls. [...] The Company also announced on November 6, 2014 that its Chief Financial Officer had resigned [...]
At the open of trading on November 7, 2014, the Shares opened at a price of $90.17 per share, an approximately 35% reduction from the closing price of $138.55 on November 6, 2014 [...].
… Exactly as Pyott was expecting …
Shortly following the Company’s announcement, the Chief Executive Officer of Party A contacted Ms. Logan to inquire whether the Company would be interested in reengaging with Party A to discuss a potential acquisition of the Company by Party A, and proposed a meeting between senior management of the Company and Party A to be held on November 20, 2014.
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This is super-interesting. Pyott calls Salix (he doesn’t even need to say “I told you so, you guys really blew it when you didn’t take my $175”) and then schedules the meeting for November 20 (!!!). As we now know, this meeting didn’t happen because it was 3 days after the Allergan-Actavis announcement. At this point, clearly, the Actavis-Allergan negotiations are fairly hot, and probably already targeting November 17 for an announcement. So Pyott is clearly setting up Salix as his “plan-B,” in case the Actavis deal break.
On November 17, 2014, Party A and Party B announced that they had entered into a definitive agreement pursuant to which Party B would acquire Party A.
