Glossary of Hostile Takeover Terms with Discussion

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Shoham said:
I try not to criticize the media, including opinion pieces, by attacking the presenter. I try to just address content. But I don't consider The Motley Fool media. I've been reading some of their pieces since the mid-1990's. Their tag line is To Educate, Amuse & Enrich; and I'll give them one-out-of-three. During the tech-bubble of the late 1990s, their stories sometimes moved stocks (I think because their deliberately silly demeanor was a lot more attractive to the tech-nerds who were driving the startup and VC scene than the buttoned-up attitudes of Wall Street); but their influence largely disappeared with the 2000 tech crash. Their style of openly advocating stocks that they own was acceptable then (under the thinking that it's legitimate for a commentator to put their money where their mouth is), but out of favor now (under the thinking that someone who owns stocks would be motivated to write one-sided opinions). The Motley Fool has openly disclosed that they own Valeant (and not Allergan) and their pieces have consistently backed Valeant and the Valeant-proposed merger.

Leaving the messenger issue aside, and focusing on content; the gist of their story is that Actavis couldn't afford Allergan, but want to buy Salix. Allergan is fearful Valeant will buy it cheaply and to block this is competing for Salix and driving Salix's price up. Actavis, through a maneuver the author labels False Flag, is feigning an interest in Allergan, at a reasonable valuation, to push Valeant's bid to a more acceptable range and thus negates Allergan's need to compete for Salix.
In addition to the fanciful assertion that anyone would attempted such a foolish (shall I say Motley) "False Flag" play when all participants have legions of MBAs and attorneys to exhaustively study every development and scenario, there is a very fatal flaw of this line of thinking. It all start with the author's assertion that Actavis can't afford Valeant. In his words "The bottom line is this: Actavis has taken on a large amount of debt through all these deals, and a $60 billion buyout of Allergan would put the company deep into the hole." The problem with that line is that all of these assertions are ten-fold more true for Valeant: Valeant has made many more deals, is far more in debt, and would be paying more to acquire. Furthermore, Actavis starts with a higher market cap (by about 50%) and vastly larger (about 3 times) revenues and earnings (Actavis is profitable, Valeant is losing money).
My math shows that Actavis can, just barely, afford to buy Allergan for cash, and can easily throw some equity in (which, unlike the Valeant equity, as a shareholder, I'd want). There is no debate that Valeant CAN'T buy something as big as Allergan for cash, and their equity -- which must be over 60% of the offer value -- is less than stellar. As for Salix, it's a small potato. If it is gobbled up by Allergan or Actavis, it won't stop the viability of an Allergan-Actavis deal, just change the terms (it will, likely, stop the viability of a Valeant deal, since that deal is a big stretch to begin with).

Dan.
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Dan I've enjoyed your posts- but you are very biased against Valeant. You are not a neutral player in this thread- your posts most clearly show this bias. The majority of the people who have posted in this thread are Allergan employees who know that if they are bought jobs will be lost. So you have found an agreeable audience who love every post you make.

But...

Although I agree with you about the Motley Fool not being the best source- in this case I agree with them. It is very doubtful that Activis is going to be making a serious play for Allergan- little to no synergies with Allergan, they just spent a ton of money on Forest and Allergan is way over valued at 200 a share- even you I'm sure agree with that. Its much more likely that Activis will make a serious bid on Salix as they have lots of synergies and the analyst seem to love that possibility. I have stock in Salix- so of course I really like this possibility. I have no position in Valeant or Allergan- but find this he said/she said stuff very interesting- and I'm looking forward to seeing how this all plays out.

My opinion is that the BOD of Allergan is playing this very smart and is getting the price up for the inevitable purchase by Valeant. I think if all the majority shareholders had not spoken out and if Allergan could have afforded it- they would have bought Salix for around 190-200 a share. They didn't so now they are planning for the inevitable.

Like I've said I've enjoyed the majority of your posts- but this last one was just a little too biased for me to not to comment on it. You make Valeant sound like its the next Enron.
 




Anonymous said:
My point though is, is Allergan driving up the price so when it comes down to a vote in December do shareholders start to change their perception of Valeant/Pershing, even with a "better bid". Fidelity has. Not only that if Allergan can get ARBs out of AGN by 10/30 does that help their cause, (votes) when it comes to voting out the board?

Like Dan has said VRX might not have much left other than a raised offer which they're struggling to figure out the financing for and since AGN raised guidance they might be able to offer anything in the new target price for AGN ie 200 -210. If VRX stock price stays below 120 range it should continue to raise questions.

I think both sides are trying to manipulate their stock prices to appease/impress shareholders. Allergan might have more options, stand alone or merger with Actavis. I think VRX is running out of them. The Pershing thing is the only reason why they've gotten this far and are still in the game but what else can they do?
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Allergan standing alone seems very probable IF the shareholders don't vote in a new BOD. If VRX can't figure out a way to offer more $ I think the shareholders will side with the current Allergan strategy. Allergan wouldn't need to purchase anyone and can continue to do what they do. How much more can Allergan manipulate their Stock- its up 50% on these buy out rumors. To be honest if you hold Allergan stock now might be a good time to reduce your position. Not a lot of upside at this current price. If Allergan doesn't get bought the stock is going to drop in value and if they get bought its not going up much.
 




Whoever wrote that article in Fool can’t do math, which is self-evident in that the writer has stayed away from all operational financial metrics. Actavis has approx. $15.5bn in net debt, pro form for FRX/FURX/DRTX, and will generate approx. $5.7bn of EBITDA in 2015. Assume the company take leverage to 4.5x net debt/EBITDA, ACT’s balance sheet alone can take on $10bn more of debt. Valeant has $17bn of net debt, and will generate approx. $4.3bn of EBITDA in 2015, this is on adjusted basis so I am giving full credit to Valeant’s “restructuring charges”. That means even maxing out leverage at 4.5x net debt/EBITDA, Valeant balance sheet itself can only take on about $2bn more debt. Now let’s give Valeant’s management a ton of credit and say their synergy estimates are real. That would be about $2.3bn of synergies (obviously not $2.7bn, they themselves admitted that some of that overlaps with Allergan’s announced cost cutting), vs. say just $500mm for Actavis (being real conservative here). That means Valeant can generate about $1.8bn more pretax earnings, levering that up 4.5x, gets you about $8bn of additional debt capacity. So on the cash side alone, if you give Valeant management 100% of the credit for everything they say AND assume that Actavis can barely achieve any synergies, Actavis can pay the same amount as Valeant. Reality is Actavis can pay more: they can probably about $1bn in synergies, and lenders won’t give Valeant the full credit for those $2.7bn synergies.

Now let’s look at equity component, Actavis has a market cap of $63bn vs. Valeant at $40bn. This means that any amount of equity the acquirer pays out will be far more diluted to Valeant than for Actavis. In fact, if you do the math, Actavis can easily do a deal where they pay $90 cash per share, which is higher than the new $87 rumored price by Valeant, and pay the rest in equity, to get to about $205-$210 per share and still be accretive. According to Goldman’s latest hedge fund report, ACT is the most commonly overweighed stock in the sector and a consensus long, so people will have far less issue taking ACT stock than VRX stock.

I am not making a statement about whether Actavis will go after Allergan. I am just pointing to the hard numbers and stating a fact that IF they wanted Allergan, they could definitely afford it – far more so than Valeant. It won’t be a full cash deal, but it’s not like Valeant could afford to pay cash anyway.
 




  • Shoham   Oct 13, 2014 at 12:32: AM
Anonymous said:
Dan I've enjoyed your posts- but you are very biased against Valeant. You are not a neutral player in this thread- your posts most clearly show this bias. The majority of the people who have posted in this thread are Allergan employees who know that if they are bought jobs will be lost. So you have found an agreeable audience who love every post you make.

But...

Although I agree with you about the Motley Fool not being the best source- in this case I agree with them. It is very doubtful that Activis is going to be making a serious play for Allergan- little to no synergies with Allergan, they just spent a ton of money on Forest and Allergan is way over valued at 200 a share- even you I'm sure agree with that. Its much more likely that Activis will make a serious bid on Salix as they have lots of synergies and the analyst seem to love that possibility. I have stock in Salix- so of course I really like this possibility. I have no position in Valeant or Allergan- but find this he said/she said stuff very interesting- and I'm looking forward to seeing how this all plays out.

My opinion is that the BOD of Allergan is playing this very smart and is getting the price up for the inevitable purchase by Valeant. I think if all the majority shareholders had not spoken out and if Allergan could have afforded it- they would have bought Salix for around 190-200 a share. They didn't so now they are planning for the inevitable.

Like I've said I've enjoyed the majority of your posts- but this last one was just a little too biased for me to not to comment on it. You make Valeant sound like its the next Enron.
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1. I don't claim to be neutral. In the introduction to my very first post I stated that while I have no connection with Allergan, a close family member with a different last name (which I subsequently identified as my wife) and many friends are Allergan employees, and it is for their benefit that I'm writing. That said, I write as I best see it; and when I think Allergan's position is weak, I say so. Long before Actavis and Salix hit the radar screen, I wrote why I don't think Valeant will win (because Allergan is doing a better job selling drugs than Valeant). My well-developed line of thinking was that when management is an over-performer, they have options and ways to finance those options. Actavis and Salix are merely manifestation of such options.

2. You are more than welcome to agree with Motley on this one. As I've pointed out many times, my opinions are just opinions and there are some very smart people betting the other way. Still, I wouldn't dismiss Actavis so quickly. If their interest was so far-fetched, as to be easily dismissed by anyone with a cursory ability to read a balance sheet, Allergan wouldn't have jumped to an all-time-high on the Actavis rumors; and Valeant wouldn't have felt the need to promise another $15 (or, as they spin it, to announce the increase now; rather than at the October 20 earning release, when they were planning to all along).

3. Valeant is not the next Enron (who violate accounting rules). They might be the next Tyco. That's not me making the comparison, that's the Allergan Board in a presentation filed with the SEC. And, like Tyco, they are a roll-up house of cards. Again, that's not me coining the analogy, but their own investment bankers, Morgan Stanley (when they were trying to be hired by Allergan).

I've looked the Valeant financial statements over and over again in the past 6 months. I just don't see what in there is worth $40B. Not the R&D pipeline, that's for sure. Not the revenue stream -- that's mostly already spoken for by their debt holders. Even if one buys their story that somehow their (non-acquisition) revenue can grow without further investment, it takes decades for such growth to actually be worth said $40B (meaning an insanely low return-on-capital). The only 'asset' that their shareholders seem to consider is worth so much is the personality-cult-like faith that MP can keep acquiring ever-larger companies and, through the magic of extreme synergy, create huge value for his shareholders with each acquisition (This time it is me making the assertion :cool:).

Dan.
 




Shoham said:
1. I don't claim to be neutral. In the introduction to my very first post I stated that while I have no connection with Allergan, a close family member with a different last name (which I subsequently identified as my wife) and many friends are Allergan employees, and it is for their benefit that I'm writing. That said, I write as I best see it; and when I think Allergan's position is weak, I say so. Long before Actavis and Salix hit the radar screen, I wrote why I don't think Valeant will win (because Allergan is doing a better job selling drugs than Valeant). My well-developed line of thinking was that when management is an over-performer, they have options and ways to finance those options. Actavis and Salix are merely manifestation of such options.

2. You are more than welcome to agree with Motley on this one. As I've pointed out many times, my opinions are just opinions and there are some very smart people betting the other way. Still, I wouldn't dismiss Actavis so quickly. If their interest was so far-fetched, as to be easily dismissed by anyone with a cursory ability to read a balance sheet, Allergan wouldn't have jumped to an all-time-high on the Actavis rumors; and Valeant wouldn't have felt the need to promise another $15 (or, as they spin it, to announce the increase now; rather than at the October 20 earning release, when they were planning to all along).

3. Valeant is not the next Enron (who violate accounting rules). They might be the next Tyco. That's not me making the comparison, that's the Allergan Board in a presentation filed with the SEC. And, like Tyco, they are a roll-up house of cards. Again, that's not me coining the analogy, but their own investment bankers, Morgan Stanley (when they were trying to be hired by Allergan).

I've looked the Valeant financial statements over and over again in the past 6 months. I just don't see what in there is worth $40B. Not the R&D pipeline, that's for sure. Not the revenue stream -- that's mostly already spoken for by their debt holders. Even if one buys their story that somehow their (non-acquisition) revenue can grow without further investment, it takes decades for such growth to actually be worth said $40B (meaning an insanely low return-on-capital). The only 'asset' that their shareholders seem to consider is worth so much is the personality-cult-like faith that MP can keep acquiring ever-larger companies and, through the magic of extreme synergy, create huge value for his shareholders with each acquisition (This time it is me making the assertion :cool:).

Dan.
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While I agree Dan and most of his audience, like myself, hear are going to be a bit biased towards AGN even when I try and be objective it's hard for me not to hard on Pershing/Valeant.

Pershing/Valeants's own presentations on R&D are wrong, that's not my opinion its a fact. Forbes did a nice piece on this back in May. Bill Ackman's history with companies in these situations is dubious. Fact not opinion. CNBC and other financial outlets have proven they know very little about AGN other than what the stock price is at a given point and time. Most of them still don't understand how much use Botox has as a therapeutic agent. As a lowly sales rep with a degree in finance I will never pretend to understand much about the finical engineering that Valeant is accused of but one factioid that got drilled into my head from my college days in corporate finance is that since ENRON any company the uses non-GAPP accounting is probably hiding something. This is what Valeant does.

I also think you have to look at the controversial way Ackman/Pearson went about this. They basically went to extreme lengths to legally break a law (insider trading) to accomplish this. Even if you're more objective than an AGN employee looking at this situation it's hard trust the two guys who have no qualms at the very least breaking the spirit of the law.

Again, I'm a lowly sales rep but I do understand the industry a bit and have been around awhile. I know which companies are good and bad and what kind of products these companies have. I've never even heard much of Valeant or Actavis before this. The only thing I know about Actavis is they bough Forest Labs and their crummy line of me-too products. Again I'm just stating facts, the two companies that are in position to win this thing are two companies that are know for their propensity for M&A and not for any particular product. This is not J & J and GSK fighting over Allergan.
 








I love how the Allergan board bashes Valeant. Lets all be honest- if Valeant came back with an offer of $200 a share or more the BOD would sell in a heart beat. Corporate USA is all about the dollar not about R&D or pipelines that never materialize.

Allergan is doing a great job pushing up its share price. Dan thanks for the commentary its been informative!
 




Thanks for all the great info and insight Dan. My question is in regards to a special dividend and if that's still a option which would help in this battle to remain independent?
 




Dan is great but Billy A and Mikey P ain't goin away, the rubber will meet the road soon enough, and when it does we can look back and see how smart everyone was! Until then god speed!
 




Thanks Dan. I like your posts and understand your positioning. At least you are open unlike many other posters. I do work for Allergan. I didn't take my husband's name but I'm not sure why taking or not taking a husband's name has upset some other posters. Please keep up the good work.
 




Anonymous said:
Thanks Dan. I like your posts and understand your positioning. At least you are open unlike many other posters. I do work for Allergan. I didn't take my husband's name but I'm not sure why taking or not taking a husband's name has upset some other posters. Please keep up the good work.
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^^^Dan's Wife. Dan writes these posts will sitting in the car pool line waiting to pick up the kids from school.
 




Sweet Ackman's Intern, aka "Mickey P's boy", aka "Deal will be inked by Memorial Day, July 4th, Labor Day, Thanksgiving, Christmas Guy" has resorted to Trolling Dan Boy in an effort to suppress the TRUTH, which is what Dan is bringing with the heat. Keep it coming Dan!!! You're clearly onto something.
 
























Anonymous said:
I suspect more plays will come out as Valeant approaches discussing earnings as well. While it has been silent for a few days there should be more noise to come.
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There is also the trial pending regards to the ability to vote for Ackman so I imagine all parties are waiting to proceed as soon as the judge tips his hand one way or the other.
 




I wonder when Allergan will launch it's trump card--we have seen many soft powers come in to play and attempts at a few hard power through insinuation of acquisitions but I wonder what else will really push this battle to the next level?
 




Anonymous said:
I wonder when Allergan will launch it's trump card--we have seen many soft powers come in to play and attempts at a few hard power through insinuation of acquisitions but I wonder what else will really push this battle to the next level?
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It may be stock buyback but I believe that is considered soft power? I am not sure what would be left as a hard power maneuver as an acquistion would seem like Allergan's only hard power left on the table.
 




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