Allergan has announced that its Board of Directors, after consulting with its independent financial and legal advisors, has unanimously determined that the revised unsolicited proposal (the “Revised Proposal”) dated May 30, 2014 by Pershing Square Capital Management, L.P. (“Pershing Square”) and Valeant Pharmaceuticals International, Inc. (“Valeant”) substantially undervalues the Company, creates significant risks and uncertainties for the stockholders of Allergan, and is not in the best interests of the Company and its stockholders.
“Valeant’s revised proposal substantially undervalues Allergan, creates significant risks and uncertainties for Allergan’s stockholders and does not reflect the Company’s financial strength, future revenue and earnings growth or industry-leading R&D,” said David E.I. Pyott, Allergan's Chairman of the Board and Chief Executive Officer. “Allergan has a track record of generating consistently robust results and value for its stockholders, and we continue to have strong momentum in our business. The investment community has recognized the revised long-term growth outlook Allergan provided on May 12, 2014 and appropriately raised valuations for a standalone Allergan. We do not believe Valeant’s proposal reflects Allergan’s growth prospects, nor does it offer sufficient or certain value to warrant discussions between Allergan and Valeant.”
“The Board is confident that the Company will create significantly more value for stockholders than Valeant’s proposal. We look forward to updating stockholders on or around the time of our second quarter earnings announcement.”
Allergan has filed an updated investor presentation with the Securities and Exchange Commission (“SEC”) and posted the presentation under the “Investors” section of the Company’s website with additional detail on the considerations behind the Allergan Board’s rejection.
The following is the text of the letter that was sent on June 10, 2014, to Valeant’s Chairman and CEO, Michael Pearson:
June 10, 2014
Mr. Michael Pearson
Chairman & Chief Executive Officer
Valeant Pharmaceuticals International, Inc.
The Board of Directors of Allergan (the “Allergan Board”) has received your letter dated May 30, 2014 in which Pershing Square and Valeant made a second revised, unsolicited proposal to acquire all of the outstanding shares of Allergan for a combination of 0.83 of Valeant common shares, $72.00 in cash per share of common stock of the Company, and a Contingent Value Right (CVR) related to DARPin® sales. With the assistance of its financial advisors and legal counsel, the Allergan Board carefully reviewed the revised proposal as well as your recent presentations.
After thorough consideration, the Allergan Board has unanimously determined that your second revised proposal substantially undervalues Allergan, creates significant risks and uncertainties for the stockholders of Allergan, and is not in the best interests of Allergan and its stockholders. In addition, we do not believe your latest proposal offers sufficient or certain value to warrant discussions between Allergan and Valeant.
In reaching its conclusion, the Allergan Board considered a number of factors regarding Allergan’s standalone business, including, among others:
Allergan’s sales growth continues to accelerate and Allergan is generating strong, long-term organic growth fueled by innovation and sales and marketing excellence;
Allergan’s extensive R&D engine has a longstanding track record of producing a +25x sales return on cumulative R&D spend and has the potential to commercialize a rich pipeline with billions of dollars of revenue and profit potential;
Allergan has a promising outlook and expects to achieve double digit sales growth and earnings per share compounded annual growth of 20 percent over the next five years; and
Allergan’s strategic plan will generate approximately $14 billion in additional free cash flow over the next five years, which provides the Company with numerous potential value drivers to further increase stockholder value, in addition to Allergan’s current plan.
The Board also considered how the second revised proposal creates significant risks and uncertainties for Allergan stockholders due to, among other things:
Valeant’s unsustainable business model relies on serial acquisitions and cost reductions, as opposed to top-line revenue growth and operational excellence;
A lack of clarity surrounding Valeant’s growth potential because of Valeant’s opaque pro-forma driven financial reporting, which provides, among other things, limited insight into how past acquisitions and products are performing;
Valeant’s anemic growth, which Allergan believes is primarily driven by significant price increases; and
Valeant’s unrealistic SG&A and R&D synergy targets, which Allergan is confident would destroy Allergan’s long-term value.
As we have indicated previously, the Allergan Board has serious concerns about the large stock component of your proposal, and the recent presentations by both you and Pershing Square did nothing to address the issues we previously raised. The Allergan Board must seriously consider the many questions around the sustainability of Valeant’s business model as they directly impact the total future consideration for our stockholders.
Allergan has a track record of delivering consistently robust results and value for its stockholders, and we have strong momentum in our business. The Allergan Board believes that through continued innovation and marketing excellence, the Company will extend its track record of substantial, long-term organic growth. This is reflected in Allergan’s premium trading multiple, which significantly exceeds Valeant’s lagging multiple, as well as the revised expectations from the investment community for a standalone Allergan.
We expect that our plan will generate double digit sales growth and earnings per share compounded annual growth of 20 percent, as well as approximately $14 billion in additional free cash flow over the next five years. This provides Allergan with financial flexibility, and the Allergan Board is confident that Allergan will create significantly more value for stockholders than Valeant’s proposal.
On behalf of the Board of Directors,
David E.I. Pyott, CBE
Chairman & Chief Executive Officer
Goldman, Sachs & Co. and BofA Merrill Lynch are serving as financial advisors to the Company and Latham & Watkins, Richards, Layton & Finger, P.A. and Wachtell, Lipton, Rosen & Katz are serving as legal counsel to the Company.