The move by the Treasury was 100% politically motivated by the narcissistic Obama administration . It is convenient to mask it as "obvious" if you are OK with heavy handed politics. A horrible move by a horrible president. We are in a bad place when government is so blatantly anti business.
Glossary of Hostile Takeover Terms with Discussion
- Thread starter Shoham
- Start date
Certainly I'm not Dan, but it seems it will take time first for the stock to stabilize due to sell offs and the unpredictable volatile market. I would think if the Teva deal closes as is planned, that would show confidence in the market and the price would climb. After that there needs to be solid quarters before you see action on a rising share price.
Sounds like you are like many of us long investors. If the stock ever gets to $340 again, I may need to consider getting rid of some.
I, too, am long agn and hoping that this will be a company I can invest in with confidence but I do believe the executive team needs to rethink its strategies with how political and piblic scrutiny is influencing biotech (ie is this company less risky or is it similar to Valeant's M&A etc. which I think many are asking and management needs to better address and execute in its goals). Pyott gave shareholders truth and clean straightforward numbers--The new company needs to decide how they will move forward.
dont expect any stability in stock price. The deal making had been activated at Allergan again. If you want few quarters of "normal" company management then forget it. Nobody in it's management has ever delivered a full year P&L without taking the help of the screening effect of acquisitions. Nobody really knows how the genuine performance has been.... Lots of financial engineering. They are M&A specialists not your traditional management. This will go on till it meets Valesnt like end.... The other big Pharma are not stupid to focus on core strengths in terms of therapeutic areas. Allergan has been buying products left right and center without paying any heed to existing or building internal capabilities to launch them successfully. So even if phase III trials are positive for those acquired compounds, the company would have no expertise or relationship with physicians to launch them successfully.
From outside all these acquisitions look good but to a Pharma insider this is a big joke. Ask the CEO of any TOP 5 Pharma and they will tell you what they think of Allergzn strategy ..... With a wry smile.
From outside all these acquisitions look good but to a Pharma insider this is a big joke. Ask the CEO of any TOP 5 Pharma and they will tell you what they think of Allergzn strategy ..... With a wry smile.
Interesting reading and analysis. I am a long time AGN employee and agree; this management is highly challenged with undertaking organic growth and stability. Even though Valaent model is truly flawed, would like to hear 551 or Dan's thoughts about "growth pharma". AGN has clean hands, as far as we know. Pfizer due diligence would have turned up something if not, correct? Is this a viable business model without shady books? What are your thoughts? Always appreciated.
Not sure I buy into your mood on AGN. Prior to Activis buying AGN, the stock of legacy AGN was anemic at best. Pyott showed a solid company with a great R&D team that produced next to nothing. (I know, I was part of it). What Activis/Allergan face is a small discovery group which scares Wall St from an organic growth standpoint. You can extrapolate the financials and realize the value legacy AGN brought to the table. Not as easy with Activis' previous acq. I doubt you have had any conversations with any CEO's nor have they publicly proclaimed your assertions. Not sure what you mean by-"the other big Pharma are not stupid to focus on core strengths in terms of therapeutic areas." Most Pharma specialize on key therapeutic areas. AGN is no different. Pfizer loved the areas cause there was little to no overlap. The biggest hurdle AGN has in my opinion is to show investors that R&D is a priority and it's not just about M&A. AGN has some new products out that are kicking ass and will be huge so your nonsense sounds like that of a short investor or disgruntled sales rep.
AGN is nothing like VRX. IF the Teva deal closes, this company's profile suddenly turns very positive. Saunders best move would be to enhance the share price but not through acquisitions. Too soon. Let growth occur more naturally through sales and then make a move. Prove to Wall St. that growth Pharma is not a flash in the pan.
- Shoham Apr 10, 2016 at 05:05: AM
Shoham
Member
Yup, I saw that. I was actually really amused.
Four weeks ago, after Pearson returned from his medical leave and held a disastrous investor call on the day the company missed the grace period (and dropped 50% in a day), one of the points Pearson made during the call was about how he may divest "non-core" assets, but "core" ones are not for sale. (Other than B&L, I'm not sure what assets he would be thinking of as "core" in this context).
I have this notion that when CEO's talk about "core" (what the heck does the word even mean for a company that is simply a portfolio of unrelated assets in different practice areas?), what they are really saying is {begin whiny voice} I don't want to shrink my empire, can't we find something smaller to sacrifice {end whiny voice}.
The investors, of course, don't care about your empire building desires; they want what's best for their investment -- and when things go south, it typically means major divestments, starting with the big (i.e. "core") assets that can bring in game-changing amounts. One of those investors was Ackman. He, at that time, said it plainly: "sell B&L." On these pages I wrote that Ackman is right while Pearson is still clinging to an image of himself being all powerful; when he is clearly not.
Ackman was already on the ascendancy at Valeant. Even though he is not even the largest shareholder, only recently (2 years ago) got interested in Valeant (with the other directors there for decades), and has zero background in Pharma (unless you consider his Allergan play as "Pharma background"); he quickly became the "king" of Valeant. It's easy to see why and how. Everyone else is tainted -- either for lying to the investors (management), or failing to see through management lies (board members) -- and he is the only perceived clean guy available; so, they better let him take charge, because without him there is no voice-of-the-company anyone would believe in. (Of course, as per my prior posts here, I don't think that he is clean; or that the board failed to see management lies -- they were as dirty as everyone -- however, I'm not the audience for this play. The audience are investors who think that Valeant can be saved with the right guidanceship; I'm not one of those, I think that even a miracle-worker can't save Valeant).
For all practical purposes, Ackman fired Pearson on the spot (Even in the "good days," did Pearson ever think that he will keep his CEO job once Ackman started sinking his teeth into Valeant? Did he not realize that Ackman fires every CEO he meets?). At least for external communications purposes, he effectively anointed himself CEO (even though Pearson is still, technically, the CEO until a replacement is found). When Ackman announced last week that a CEO will be found within weeks not months (implying that someone is already in advanced negotiations), I was giggling to myself, saying "yes, himself!" (seriously speaking: I don't think he'll appoint himself CEO; he has neither Pharma nor operating experience -- but it's not entirely out of the question, what he lacks in credentials he more than makes up with ego. Realistically speaking, I think he will appoint some connection or ally.)
So, what does Ackman say now, a few weeks into his first CEO-ship (even though it's an unacknowledged CEO-ship): {whiny voice} B&L is a core asset, it isn't for sale {end whiny}.
My take: We are now well into this campaign of daily good (but, when one looks closely, vacuous) news from Valeant, intended to show that the worst is behind us, and the recovery is gathering momentum by the day. Saying B&L is not for sale, becuase it is "core" exhudes confidence -- we are in a strong enough position that we can decide what to sell and what to keep. Meanwhile calamitous deadlines are approaching rapidly, and without a game changer, the creditors will take the company and liquidate it. Other than selling B&L, there aren't an awful lot of available game changers. So, this "not for sale" pronouncement, as far as I'm concern, is just a negotiation stance: After Saunders said something like "B&L is so crappy now, I'm not sure I even want to buy it," Ackman is negotiating back "It is so great, we are not sure we want to sell it in the first place."
Hope you are all as amused as I am.
Dan.
Pfizer backed away from the deal, and they could have waited another 3-4 months to close it to avoid the Teasury rules. I think you have your answer. If AGN and the inversion were good, then Pfizer would still be pushing forward with it.
This "growth Pharma" is dead. Very very few M&As in the past several years are showing any return. Eg Teva for Zercuity and Cephalon, Hospira, Val, etc are all examples of failed value. The Street has started to come around to this acknowledgment
.Sorry folks, filing Chapter 7. Too much of CP. I lost it all
Dan
Dan
#975 - why mess with Dan? He doesn't deserve it. He's been an awesome contributor and has generated thoughtful, real conversation. Thanks Dan.
Check out this article that came out in Forbes. It echoes my deep concerns in how the Treasury acted.
http://www.forbes.com/sites/brucebo...-termination-of-pfizer-allergan/#31476fe620aa
Now we wait to see AGN share price stability. As posted before, until Teva closes we will likely languish. Pre Treasury capricious behavior I was convinced Teva would sail through. Now, jaded as I've become, I'm less convinced that the FTC will act predictably. There might be enough political pressure against the Teva deal to either block it or put a big constraint in front of AGN. Generics are the favorite child of politicians so who know what lengths they will go to to keep the playing field level by not allowing the creation of a dominant player like Teva.
Hold your breath. In a government ruled by fiat, all bets are off.
If Teva does close, AGN should recover nicely but the days of $300+ share price are a long way off - at least until the election cloud is lifted.
P551
http://www.forbes.com/sites/brucebo...-termination-of-pfizer-allergan/#31476fe620aa
Now we wait to see AGN share price stability. As posted before, until Teva closes we will likely languish. Pre Treasury capricious behavior I was convinced Teva would sail through. Now, jaded as I've become, I'm less convinced that the FTC will act predictably. There might be enough political pressure against the Teva deal to either block it or put a big constraint in front of AGN. Generics are the favorite child of politicians so who know what lengths they will go to to keep the playing field level by not allowing the creation of a dominant player like Teva.
Hold your breath. In a government ruled by fiat, all bets are off.
If Teva does close, AGN should recover nicely but the days of $300+ share price are a long way off - at least until the election cloud is lifted.
P551
I had a conversation with Dan, and Dan suggested me to post it here.
Hi Dan, I came across your thread on AGN/VRX accidentally, and I think you did a great job! I guess I have something to add/some questions for you then, if it is convenient for you to answer.
1. The recent credit amendment affects secured lenders only, so the 1% interest bump would result in ~$100 MM increase in annual interest expense, instead of $300 MM (i.e. $20 bn of debt is unsecured). And the interest rate fluctuates depending on secured debt coverage ratio--if they are committed to pay down debt (instead of using sales proceeds as permitted investment), it is likely they would go under 1.75x secured debt ratio and return to the old interest rate.
2. I'm curious about your opinion on VRX former/current management--I saw your comment (i.e. they are dirty), but I just wondering how you come to this conclusion? The reason I ask is that I actually have talked to a partner of a fund, which was, and still is one of the top 10 stock holders of VRX. Their expertise is identifying top management, and I think their performance has been good (their other holdings are TWC, WBA, ENDP etc). I'd really appreciate your thoughts on this. I have listened to VRX old conference calls in the past several days, Pearson looks find to me (but I am fairly inexperienced, so I may be wrong).
3. I know you think VRX stock is worthless because they used debt to fund acquisitions and they overpaid. But would it only be the case when VRX liquidate itself (i.e. when VRX sells various business and get less than what it paid)? I don't think VRX can sale most of its subsidiaries more than what it paid, because it has tax advantage/aggressive cost structure, so it could pay more than other companies. If VRX becomes a utility-like company (thinking of those telecom companies) and paying down debt gradually, I actually think the equity is fairly priced (yielding around 8-9% for unsecured debt, credit may be overvalued, since the yield doesn't sufficiently compensate for the risk).
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Dan's response
In any event: here are my quick answers:
1. Unless they can reach agreement with ALL creditors, the agreement wont stop default and is thus moot. Therefore, one should count the cost of a comprehensive agreement, not just the piecemeal they secured. 1b: If you believe, as I do, that their assets are worth less than their debt, then as they dispose them, there will never be a point where they return to covenant (actually, I wouldn't say 'return,' since I don't believe they ever were in compliance, but-for fake accounting)
2. I have quite a few posts in the thread, spanning 2 years, where I articulated in great details why I think Pearson (and the Board) is dirty. As for credible people trusting VRX and MP sounding fine -- well, if he didn't, no one would have invested in him, and we would have never gotten to this point, would we? But we are.
3. You would have to believe that VRX is so good at value extraction that they can pay more than anyone else, more than the sellers think their own company is worth, pay with some of the most expensive cash in pharma, destroy value, kill all pipelines, alienate many constituencies, and still end up with assets that are worth even more than they paid for them. Apparently, the investors believed it can, and was, done. I don't.
Dan.
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My response
1. What you said it is possible, but consider the leverage of a unsecured creditor. Now the cross-default clause is waived, so unsecured creditors can push for an event of default and put VRX into bankruptcy--however, only secured lenders receive interest during bankruptcy, and most likely unsecured lenders would be impaired if a 363 sale (of all core assets) is used to pay down debt. Moreover, there is something called lenders' liability. I don't see why unsecured lenders want to do that, except for a small subset of lenders (distressed debt investors), however, the current bond prices are too high for distressed investors. Looking at the current holders of VRX credit, you don't see many distressed players. Unsecured lenders can use this as a negotiation tactic to increase coupon rate, but they are still behind all secured lenders and they have everything to lose during bankruptcy.
For 2 and 3, I see your point. At the end of the day we are all subject to conformation biases and we are entitled to our opinions. I try not let ego/biases get in the way of generating returns, and there are more opportunities in other places with a bigger margin of safety.
Hi Dan, I came across your thread on AGN/VRX accidentally, and I think you did a great job! I guess I have something to add/some questions for you then, if it is convenient for you to answer.
1. The recent credit amendment affects secured lenders only, so the 1% interest bump would result in ~$100 MM increase in annual interest expense, instead of $300 MM (i.e. $20 bn of debt is unsecured). And the interest rate fluctuates depending on secured debt coverage ratio--if they are committed to pay down debt (instead of using sales proceeds as permitted investment), it is likely they would go under 1.75x secured debt ratio and return to the old interest rate.
2. I'm curious about your opinion on VRX former/current management--I saw your comment (i.e. they are dirty), but I just wondering how you come to this conclusion? The reason I ask is that I actually have talked to a partner of a fund, which was, and still is one of the top 10 stock holders of VRX. Their expertise is identifying top management, and I think their performance has been good (their other holdings are TWC, WBA, ENDP etc). I'd really appreciate your thoughts on this. I have listened to VRX old conference calls in the past several days, Pearson looks find to me (but I am fairly inexperienced, so I may be wrong).
3. I know you think VRX stock is worthless because they used debt to fund acquisitions and they overpaid. But would it only be the case when VRX liquidate itself (i.e. when VRX sells various business and get less than what it paid)? I don't think VRX can sale most of its subsidiaries more than what it paid, because it has tax advantage/aggressive cost structure, so it could pay more than other companies. If VRX becomes a utility-like company (thinking of those telecom companies) and paying down debt gradually, I actually think the equity is fairly priced (yielding around 8-9% for unsecured debt, credit may be overvalued, since the yield doesn't sufficiently compensate for the risk).
-------------------------------------------------------------------
Dan's response
In any event: here are my quick answers:
1. Unless they can reach agreement with ALL creditors, the agreement wont stop default and is thus moot. Therefore, one should count the cost of a comprehensive agreement, not just the piecemeal they secured. 1b: If you believe, as I do, that their assets are worth less than their debt, then as they dispose them, there will never be a point where they return to covenant (actually, I wouldn't say 'return,' since I don't believe they ever were in compliance, but-for fake accounting)
2. I have quite a few posts in the thread, spanning 2 years, where I articulated in great details why I think Pearson (and the Board) is dirty. As for credible people trusting VRX and MP sounding fine -- well, if he didn't, no one would have invested in him, and we would have never gotten to this point, would we? But we are.
3. You would have to believe that VRX is so good at value extraction that they can pay more than anyone else, more than the sellers think their own company is worth, pay with some of the most expensive cash in pharma, destroy value, kill all pipelines, alienate many constituencies, and still end up with assets that are worth even more than they paid for them. Apparently, the investors believed it can, and was, done. I don't.
Dan.
-------------------------------------------------------------------
My response
1. What you said it is possible, but consider the leverage of a unsecured creditor. Now the cross-default clause is waived, so unsecured creditors can push for an event of default and put VRX into bankruptcy--however, only secured lenders receive interest during bankruptcy, and most likely unsecured lenders would be impaired if a 363 sale (of all core assets) is used to pay down debt. Moreover, there is something called lenders' liability. I don't see why unsecured lenders want to do that, except for a small subset of lenders (distressed debt investors), however, the current bond prices are too high for distressed investors. Looking at the current holders of VRX credit, you don't see many distressed players. Unsecured lenders can use this as a negotiation tactic to increase coupon rate, but they are still behind all secured lenders and they have everything to lose during bankruptcy.
For 2 and 3, I see your point. At the end of the day we are all subject to conformation biases and we are entitled to our opinions. I try not let ego/biases get in the way of generating returns, and there are more opportunities in other places with a bigger margin of safety.
Looks like one of the creditors is calling a default. Looks like Dan was spot on again!!
Valeant Pharmaceuticals... today announced that it has received a notice of default from holders of its 5.5% Notes due 2023 as a result of the delay in the Company filing its Form 10-K for the fiscal year ended December 31, 2015.
Valeant Pharmaceuticals... today announced that it has received a notice of default from holders of its 5.5% Notes due 2023 as a result of the delay in the Company filing its Form 10-K for the fiscal year ended December 31, 2015.
So you are saying we won't see $300 for years? That is quite a let down for employees and retirement funds. It's possible with Teva the share price may climb a bit but as of today the stock is almost $120 off its high. Perhaps this could also be the reason for the sell off in that shareholders don't want to wait more than two years to see Allergan stock turnaround given its volatility to media, politics and growth strategy. Brent Saunders was given too much too quickly to successfully drive honest strong shareholder growth--one has to wonder what Saunders thoughts are on his stock diving.
You are probably right that Brent has taken on too much, too fast, but I don't know that he's really made a bad move over the past two years. He's buying high quality companies and products with cheap capital, then aggressively executing the integration plans. Absent an unprecedented move on the part of the government, shareholders would have done well. I wouldn't give up on Brent just yet. As long as the Teva deal closes, we are going to be in a very strong position to drive further growth.
I also have a lot of equity tied to his success, so maybe I'm just a hopeless optimist.