I am sure I am far from being the only one who sighed with some relief when the most current hostile takeover soap opera known as "Valeant vs. Allergan" came to a close with the entry of another player into the fray - a white knight who slapped an unbeatable offer onto the table. New Jersey's Actavis put an end to the never-ending shenanigans with a crisp $66B bid for Allergan which effectively sent Valeant Pharmaceuticals scurrying off with it's tail between its legs.
This saga had been going on for the best part of a year, since the initial lowball offer of around $45B in April by Quebec-based Valeant for California-based botox maker Allergan, and it got nastier as things developed. Valeant has been on a roll of acquisitions of late, topped by the 2013 acquisition of global eye health company Bausch & Lomb for a healthy $8.7B - Valeant's biggest deal to date.
Valeant CEO J. Michael Pearson is nothing if not aggressively ambitious and he has not been shy in stating that he intends to make Valeant one of the top five global drugmakers by 2016, by market cap. While his presence at Valeant has grown the company considerably in value, they are not yet in the same ballpark as the current top five players, and Pearson saw Allergan as a key acquisition that would help them get there.
But Pearson is known to wield a big axe in terms of cost cutting and fat trimming from overstuffed companies, and in fact it's part and parcel of his acquisition process; this is no doubt one aspect that had Allergan concerned, and it wasn't helped with the alliance of Pearson with one Bill Ackman of hedge fund Pershing Square Capital. Ackman had surreptitiously acquired a 9.7% share of Allergan using a joint fund with Valeant, making him the largest shareholder, and thus perfectly positioned to orchestrate a (hostile) takeover.
Allergan pushed back from the get-go, even increased offers did not do the trick, and they put a poison pill into motion to push back the raiders of Valeant; but Ackman et al. simply responded by steering the deal into truly hostile waters via manoeuvering to replace the majority (or all) of Allergan's board. He wanted to take it to the shareholders in the hope that they would force Allergan CEO David Pyott to come to the table for a realistic conversation - one that never happened in the end.
Although Pyott appeared to keep a much lower profile than either Ackman or Pearson, he did ensure that there was a healthy smear campaign against Ackman in particular, with accusations not only of accounting anomalies but actual insider trading by Ackman and Pershing Square. Lawsuits were inevitable and they did come, and it truly appeared that this deal was going to get even nastier and likely to drag on well into 2015 - undoubtedly getting in the way of Pearson's grand plans for 2016.
In the end, all's well that ends (not) well, for basically everyone involved! As it happens, the $66B deal with Actavis turns out to be a very lucrative one for Ackman's hedge fund, which will rake in over $2B on this deal. Not bad for a few month's "work", eh? (Canadian term intended!). But perhaps more intriguingly, in return for the $75.9M that Valeant pumped into the joint fund that allowed Ackman to acquire his majority stake in Allergan, Valeant in fact now stands to receive some serious pocket money - to the tune of $473.2M. That will put them around $400M up on this entire non-deal (for them), which is hardly a kick in the teeth.
Business as usual when you are in big business, some might say. Of course, the one laughing all the way to the bank (his own) is Bill Ackman, with a $2B+ payday for having at least appeared to be ravenous for the Allergan pharmaceutical menu. If one were to be cynical, one might suggest that it was actually a brilliant manipulation to draw other (less toxic) buyers to the table, and that Ackman had less interest in Valeant acquiring Allergan than he had in driving up the price of their acquisition by a rival - delivering him a more rapid and extremely profitable exit. Only he knows whether that was the case or not.
The far-from-lowball offer of $219 per share from Actavis did hit the sweet spot, Valeant pulled away from the table, and Actavis acquired Allergan for $66B. So Allergan and Pyott did very, very well in the end. As did Pershing Square and Ackman. As did Valeant and Pearson. All's well that ends well, and rather amusingly, sometimes all's well that doesn't end well, and everyone heads off to the bank with something to show for their troubles. Now, that is what you have to call good business!
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