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Valeant’s Battle for Allergan
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Case Analysis
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Submitted By:

Ashwin C PGP/24/072
E P Shanmuga PGP/24/082
R Shachin Shibi PGP/24/105

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 1. Why does Valeant wish to acquire or merge with Allergan? Is it possible for Valeant to
create value by acquiring/merging with Allergan?

Valeant with a very high interest in the eye care and cosmetic market, found Allergan to be
in synergy for its business objectives. Pearson wanted to acquire the specialty
pharmaceuticals segment which consisted of products which were high-cost, high-
complexity and high-touch which were not in the product mix of Valeant. He was known for
cutting costs and introducing extreme capital discipline in businesses and believed that by
cutting unnecessary costs in Allergan, he can increase the value for its shareholders.

2. Is Valeant offering a premium to Allergan’s shareholders for the change of control?

Valeant proposed multiple offers to Allergan:
• 21st April 2014, Valeant made a public offer to Allergan’s leadership team to merge
the two companies. Valeant proposed exchanging $48.30 in cash plus 0.83 shares of
Valeant for each share of Allergan, a total value of $152.88 per share. This was a

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premium of 31% over Allergan’s stock price of $116.63 on 10th April.

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• 28th May, Valeant increased the cash component of its offer by $10 per share, from

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$48.30 to $58.30 per share. This increased the total offer to $166.16 per share, $58.30

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in cash and 0.83 shares of Valeant trading at $126.95 per share.
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• 29th May, Bill Ackman concluded that if the offer price was raised to an effective of
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$180 per share then the offer would receive support.
• 30th May, Valeant increased the offer once more. The cash component was increased
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from $58.30 to $72 per share. Valeant’s share price had closed at $129.22 the previous
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day, making the effective offer $179.25 per share, plus the possibility of a contingent
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value right (CVR) of $25 per share.

Hence Valeant was willing to give the shareholders of Allergan a significant premium for the
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change of control
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3. What do you make of Allergan’s reluctance to talk to Valeant? Would there be any
harm in talking to the potential suitor?
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Allergan is reluctant to talk to Valeant because of the difference in opiions between the two
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companies. Valeant's ideas to

Evade tax
• Inorganic growth from the acquisition
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• Cost leadership by minimizing R&D

All the above factors were the reasons for reluctance in talk.

They invest heavily in R&D and are able to come up with products that are commercially
successful to pay the investors even though growth has stagnated over last few years. The
profit has been positive despite that, which can be attributed to their corporate governance.

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 Mr. Pyott, outof his sheer disdain for Valeant and their operating policies, did not want to talk
to pearson which reflects his reluctance to discuss any deal with Valeant

4. Explain in detail the nature of the debate between Allergan and Valeant as to whether
Valeant’s business strategy is capable of sustaining business growth.

Allergan did not find any synergy in its acquisition or merger by Valeant Pharmaceuticals
because of Valeant’s inappropriate business strategy and Allergan highly doubts whether its
strategy is capable of sustaining business growth. While on the other hand, Valeant found
Allergan’s product portfolio to be in synergy with it’s business objective and hence was trying
to acquire Allergan because Allergan is a multinational speciality pharmaceutical company.
They are into the sales and manufacturing of eye care; facial and cosmetic products and they
were best known for the Botox.

5. What was the role played by William Ackman and his firm Pershing Square in this?

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Why weren’t Ackman’s actions considered insider trading?

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William Ackman strongly believed in Valeant’s business strategy and was strong supporter of

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the company’s business philosophy. Ackman and Pershing square entered into a confidentiality
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agreement to form Joint Venture PS Fund 1 for the acquisition of Allergan Pharmaceuticals,
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and it was providing higher capital for the same. Ackman and Pershing Square began purchased
close to 10% of the shares to become the single largest share holder, to influence the
shareholders afterwards for the proposal of acquisition.
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Ackman did noy hold any fiduciary relationship with Allergan. Insider is a term describing a
director or senior officer of a company, as well as any person or entity that beneficially owns
more than 10% of a company's voting shares. So, Ackman cleverly maintained their position
in the firm and was not a insider of the firm.
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6. Which one out of these three options will you recommend to the management of
Allergan: (a) stay single, (b) go with Valeant or (c) go with Actavis.
Allergan should go with a merger with Actavis, as staying single was not an option because:
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• fend off hostile takeover

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• financially compelling deal(all cash offer greater than current market value)
• High synergies(strong commitment to R&D, deep engagement with medical
specialists, etc)
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• expansion and global leadership(international commercial opportunities, add new

product lines)

Group
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