A few months ago, an innovative partnership between Valeant Pharmaceuticals and billionaire investor William Ackman to buy Botox maker Allergan looked like a blueprint for success. Now some Valeant shareholders who backed the deal at its start are questioning whether it will become reality.
A robust defense from California-based Allergan and Valeant’s own weak second quarter financial performance have pressured Valeant stock, which is down 6% this year after doubling in 2013. Ackman, whose hedge fund Pershing Square Capital Management owns nearly 10% of Allergan, is digging in and told his own investors he is focused on getting a deal done. Valeant also remains committed.
Allergan’s resistance — the company has rejected Valeant’s overtures and instead been looking for a partner while also trying to cut costs — is an unexpected twist for Valeant, whose steady stream of drug industry acquisitions under Chief Executive Michael Pearson drew frequent investor praise.
Valeant’s novel strategy to team up with Ackman and his hedge fund, also was lauded. One of Valeant’s top shareholders, ValueAct Capital, called Valeant and Allergan a “perfect match” when the plan was announced in late April.
Now the value of Valeant’s cash and stock-based offer has fallen $5 billion to $48 billion.
ValueAct is the first large shareholder to have expressed concerns about the deal publicly, telling Reuters last week that Canada-based Valeant doesn’t need to buy Allergan and that it may do better by considering other acquisition targets if the battle drags out. In Reuters interviews since then, five other large Valeant shareholders, most of whom support the deal, said that there were mounting doubts, ranging from concern a transaction wouldn’t happen to worries that the pursuit of Allergan would drag out so long as to undermine the benefits.
“The dive in the stock price does make it difficult to pursue Allergan and others,” said Valeant investor Gautam Dhingra, CEO of High Pointe Capital Management, which owned 18,600 shares as of June 30.
Dhingra said he still believes in Valeant’s business model of acquiring companies and cutting research & development costs, although people are starting to challenge it. “Until now there has been no flaw in the model, nobody has questioned it,” he said.
Another investor at a Canadian investment fund said that six months or a year of pursuing Allergan would not be too long, but that by early next year, he would like the deal to be moving forward. “If the opportunity cost