Supposedly Endo pharma guidance was cut and their stock tanked taking so called Roll over companies with it. Allergan has to shed its image of rollover and go back to the image of the first Allergan before faith is restored that it is changing its ways of being a rollover.
Glossary of Hostile Takeover Terms with Discussion
- Thread starter Shoham
- Start date
Supposedly Endo pharma guidance was cut and their stock tanked taking so called Roll over companies with it. Allergan has to shed its image of rollover and go back to the image of the first Allergan before faith is restored that it is changing its ways of being a rollover.
This company will not change as long as Saunders is in charge. He was really good at the rollup game while it lasted, but he has no clue how to lead or build a strong organization. He has zero trust or credibility internally, so the entire company is just on cruise control waiting for the next BOLD move to upend everything again.
Saunders need to be shown the door! Need Pyott at the helm. Saunders is way over his head. Activis buying AGN was clearly formed for Pfizer to buy. Now that that deal is over, Saunders doesn't have a clue how to run this mega nightmare!
US Senate did a yyyuuge document dump of exhibits collected from the investigation of Valeant by the Senate Committee on Aging. You can find a link to Senate documents within the John Hampton Bronte Capital blog
www.brontecapital.blogspot.ca
Many downright just embarrassing emails from Ackman, but also stuff that will need a lot of 'splainin' by the company and by Pearson, etc.
One email had Ackman discussing the sale of derm, and that he was sure "Brent" would be interested.
Look for many financial press stories to follow, as they research the various documents and try to beat each other to the deadline.
www.brontecapital.blogspot.ca
Many downright just embarrassing emails from Ackman, but also stuff that will need a lot of 'splainin' by the company and by Pearson, etc.
One email had Ackman discussing the sale of derm, and that he was sure "Brent" would be interested.
Look for many financial press stories to follow, as they research the various documents and try to beat each other to the deadline.
Hello Dan & 551After all the money those investment banks made over the years advising Valeant to overpay for second grade assets, I think it would only be fair if they did the liquidation project gratis...(not a chance). Dan.
Would like to know your thoughts about stock bye back announced today. AGN has been in a steep decline (as we all know) and I was pleased with this announcement. Do you agree and believe this will support a return to the pre-merger value of AGN? This is of course anticipating the successful execution of the Teva deal.
Thanks again!
- Shoham May 16, 2016 at 10:22: PM
Shoham
Member
Hi everyone.
It's been a while, and there is a lot of news. Normally I try to keep up, but I've been a bit busy with my day job and family life.
First, of course, Allergan.
I have to admit that I'm not making much head or tail out of the re-org. My only guess -- and it is really just a guess -- is that the purpose of the re-org is to knock out some middle management. Middle management is really a difficult animal for large organizations. On the one hand, they represent the richest repository of institutional knowledge and managerial skills -- essentially the officer corp of the corporation. It is the indispensable heart of the company. On the other hand, middle management, when left alone, tends to create new functions and layers -- even when there is no increase in volume or productivity to justify -- and individual managers find many ways to entrench themselves. Periodic re-orgs can be used to unclog a middle management that grew too big or too bureaucratic. By placing multiple middle managers, who previously had fiefdoms that couldn't live without them, under a single senior manager; that manager will have an opportunity to reduce duplication and drop the lowest performers.
Is this what Saunders is doing, now that an inversion merger is out? I don't know. I don't know when was the last re-org, but it was before I started paying attention (the Pyott realignment during the Valeant battle doesn't count since it was targeted at closing far-flung sub-critical-mass facilities and unprofitable functions; not cracking down on middle management). So -- whether true or not -- Saunders may feel that there is some middle management fat that's overdue for squeezing.
Stock price: I know we would like to be in the $300-400 range, but the general damage that Valeant and it's ilk have inflicted on the entire industry is still impacting. There is one bright spot, though: The Teva deal -- which I was paranoid that Teva may want to back out of -- seems to be nearing completion. (The re-org is a clear sign that a lot of the uncertainty about Teva have now resolved). I hate predicting the market, but I think there is some discount built into the Allergan stock price to account for the possibility that the deal will crater; and that discount will disappear as the deal becomes a reality.
Next, Valeant (what else is new?).
So, Valeant did, after all, come out with an audited financial report, on April 29, as promised, and it didn't have a Going Concern disclosure or other covenant breaking elements as I speculated might be the case. (It's possible that it would have been covenant breaking as of the day it was due, and thus would have then led to Going Concern disclosure; but with the Covenant re-negotiation, primarily changing the trigger ratios -- in exchange for a good chunk of cash -- it didn't break any when released). I originally planned to read the full statement to figure out how they managed to get PWC to sign off on what I considered to be an un-audit-able Philidor situation. However, it's a very long and very dense report, and I couldn't find the time to do it myself. So, instead, I am relying on what I saw in the Wall Street press.
It seems that PWC included a disclosure that there are "material internal control weaknesses." Hmm. Maybe I'm too old school, but if the mechanisms by which individual transactions are supposed to be verifiably aggregated to form the financial statement (aka "internal controls") are unreliable, how can one argue that the result is "audited?" I guess PWC is off the hook, since they just gave themselves a master disclaimer that whatever they signed off on is not necessarily for real. Why none of the debt holders is calling foul? That's a mystery to me. Surely there is at least one out there who would benefit from forcing the issue and has good lawyers to at least get this in front of a judge. Maybe they are giving Joe Papa (new CEO) a bit of grace time to come up with a game plan.
Speaking of Papa: The good news is that Valeant did do the, way way overdue, house cleaning; dumping Pearson and most of the Board. The bad news is that Ackman, who is part of the problem, is now calling the shots as, ostensibly, part of the solution. Ackman's solution, rather than the obvious need to start an orderly liquidating of assets and hope that when all is done enough is sold to pay off all the debt and maybe even leave some for the shareholders, is to cling to the "platform" concept -- that somehow Valeant is worth more than the sum of it's part (in the present state, it is worth less, much less, than the sum of it's parts; because demoralization, legal issues, political spotlights, and likewise killer problems cross over from the affected parts to the whole of the company). Much as my personal sense of fairness dictates that I should try to give Papa, even if he was recruited by Ackman, some benefit of the doubt; the very sorry state he left his prior CEO-ship (at Perrigo), does not a fan make me. It's always more rewarding to take credit for cleaning (or at least attempting to clean) someone else's mess than your own. The equity investors didn't have a ton of patience either. After initially pushing the shares, on the papa news, to high-30's post-crash high; by the end of last week it was back into making new lows. It is now just a shade above multi-year low.
Before I close this note, there is one more loose end from the Allergan-Valeant battle that closed last week: Bill Doyle, an Ackman Harvard classmate who joined Pershing Square (Ackman's hedge fund) two years ago and sold Ackman on Valeant, and, by extension, the whole Allergan hostile takeover play; was fired. I am sure not many readers of this thread are shedding tears for his trek to the unemployment office.
Sorry if I was a bit rumbling today. A lot has happened, and I have only so much time to touch on it.
Hope everyone is doing great!
Dan.
It's been a while, and there is a lot of news. Normally I try to keep up, but I've been a bit busy with my day job and family life.
First, of course, Allergan.
I have to admit that I'm not making much head or tail out of the re-org. My only guess -- and it is really just a guess -- is that the purpose of the re-org is to knock out some middle management. Middle management is really a difficult animal for large organizations. On the one hand, they represent the richest repository of institutional knowledge and managerial skills -- essentially the officer corp of the corporation. It is the indispensable heart of the company. On the other hand, middle management, when left alone, tends to create new functions and layers -- even when there is no increase in volume or productivity to justify -- and individual managers find many ways to entrench themselves. Periodic re-orgs can be used to unclog a middle management that grew too big or too bureaucratic. By placing multiple middle managers, who previously had fiefdoms that couldn't live without them, under a single senior manager; that manager will have an opportunity to reduce duplication and drop the lowest performers.
Is this what Saunders is doing, now that an inversion merger is out? I don't know. I don't know when was the last re-org, but it was before I started paying attention (the Pyott realignment during the Valeant battle doesn't count since it was targeted at closing far-flung sub-critical-mass facilities and unprofitable functions; not cracking down on middle management). So -- whether true or not -- Saunders may feel that there is some middle management fat that's overdue for squeezing.
Stock price: I know we would like to be in the $300-400 range, but the general damage that Valeant and it's ilk have inflicted on the entire industry is still impacting. There is one bright spot, though: The Teva deal -- which I was paranoid that Teva may want to back out of -- seems to be nearing completion. (The re-org is a clear sign that a lot of the uncertainty about Teva have now resolved). I hate predicting the market, but I think there is some discount built into the Allergan stock price to account for the possibility that the deal will crater; and that discount will disappear as the deal becomes a reality.
Next, Valeant (what else is new?).
So, Valeant did, after all, come out with an audited financial report, on April 29, as promised, and it didn't have a Going Concern disclosure or other covenant breaking elements as I speculated might be the case. (It's possible that it would have been covenant breaking as of the day it was due, and thus would have then led to Going Concern disclosure; but with the Covenant re-negotiation, primarily changing the trigger ratios -- in exchange for a good chunk of cash -- it didn't break any when released). I originally planned to read the full statement to figure out how they managed to get PWC to sign off on what I considered to be an un-audit-able Philidor situation. However, it's a very long and very dense report, and I couldn't find the time to do it myself. So, instead, I am relying on what I saw in the Wall Street press.
It seems that PWC included a disclosure that there are "material internal control weaknesses." Hmm. Maybe I'm too old school, but if the mechanisms by which individual transactions are supposed to be verifiably aggregated to form the financial statement (aka "internal controls") are unreliable, how can one argue that the result is "audited?" I guess PWC is off the hook, since they just gave themselves a master disclaimer that whatever they signed off on is not necessarily for real. Why none of the debt holders is calling foul? That's a mystery to me. Surely there is at least one out there who would benefit from forcing the issue and has good lawyers to at least get this in front of a judge. Maybe they are giving Joe Papa (new CEO) a bit of grace time to come up with a game plan.
Speaking of Papa: The good news is that Valeant did do the, way way overdue, house cleaning; dumping Pearson and most of the Board. The bad news is that Ackman, who is part of the problem, is now calling the shots as, ostensibly, part of the solution. Ackman's solution, rather than the obvious need to start an orderly liquidating of assets and hope that when all is done enough is sold to pay off all the debt and maybe even leave some for the shareholders, is to cling to the "platform" concept -- that somehow Valeant is worth more than the sum of it's part (in the present state, it is worth less, much less, than the sum of it's parts; because demoralization, legal issues, political spotlights, and likewise killer problems cross over from the affected parts to the whole of the company). Much as my personal sense of fairness dictates that I should try to give Papa, even if he was recruited by Ackman, some benefit of the doubt; the very sorry state he left his prior CEO-ship (at Perrigo), does not a fan make me. It's always more rewarding to take credit for cleaning (or at least attempting to clean) someone else's mess than your own. The equity investors didn't have a ton of patience either. After initially pushing the shares, on the papa news, to high-30's post-crash high; by the end of last week it was back into making new lows. It is now just a shade above multi-year low.
Before I close this note, there is one more loose end from the Allergan-Valeant battle that closed last week: Bill Doyle, an Ackman Harvard classmate who joined Pershing Square (Ackman's hedge fund) two years ago and sold Ackman on Valeant, and, by extension, the whole Allergan hostile takeover play; was fired. I am sure not many readers of this thread are shedding tears for his trek to the unemployment office.
Sorry if I was a bit rumbling today. A lot has happened, and I have only so much time to touch on it.
Hope everyone is doing great!
Dan.
Dan,
If you have a moment, can you explain if/how Valeant can service its debt? I just don't see a path forward. Anything they sell would be for far less than they paid. If they did sell some assets it would decrease their future cashflows making the remaining debt harder to service. Sales are down, the patient assistance programs are being scrutinized, R&D is slashed so they have no pipeline and their brand is cooked hurting future business.
Are they not in a death spiral?
Looking forward to you reply.
If you have a moment, can you explain if/how Valeant can service its debt? I just don't see a path forward. Anything they sell would be for far less than they paid. If they did sell some assets it would decrease their future cashflows making the remaining debt harder to service. Sales are down, the patient assistance programs are being scrutinized, R&D is slashed so they have no pipeline and their brand is cooked hurting future business.
Are they not in a death spiral?
Looking forward to you reply.
- Shoham May 20, 2016 at 06:23: PM
Shoham
Member
That's pretty much has been my theme in this thread for almost 2 years now. Their play has been to raise prices faster than market-share capturing competition can arise, fool around with accounting tricks, and get into the next acquisition before reality catches up with them.
That play is gone and I don't think there is a viable replacement play, but if there is, it would be based on selling assets to pristine buyers who can make the already-raised drug prices stick (by attaching world class branding, service, and R&D to the overpriced products) and thus eking out a decent sale price. I don't see the pristine brands of this industry sullying themselves to let Valeant shareholders out of the hole they dug themselves into, but there may be some deal-hungry CEOs out there who will entertain the thought.
More likely, it will be a slow, yet intractable, death spiral. They will keep selling assets to finance debt service payments. Lenders are not supposed to allow borrowers to do this, but they will; since the alternative is disorderly liquidation. When the obits are written, the shareholders would still be wiped out and the debt holder less than whole (my opinion).
Oh, and they will have to ditch the name; it's so toxic now as to have a negative brand value.
Dan.
Thanks Dan. I agree with your assessment. It's amazing the market hasn't caught on to this yet.
Regarding new name to replace Valeant, how about "Papa's House of International Pharma"
Thanks, Dan. Longtime follower of your thread.
So Dan - any thoughts about Carl Icahn taking a stake in AGN? What about his statement?
Standard stuff, has happened a couple times prior to this. They have to be put on notice before a countdown to default begins.
http://www.bloomberg.com/news/artic...ire-morgan-stanley-to-sell-dermatology-assets
25% reduction in price when compared to what Valeant paid. If you applied this reduced value to all their assets...
25% reduction in price when compared to what Valeant paid. If you applied this reduced value to all their assets...