Advisers on pursuit of Allergan pitch out of both sides of mouth

Cantillon: few ‘clean hands’ in investment banking

The battle between Valeant Pharmaceuticals and its latest target, Allergan, has thrown a harsh light on some of the tactics employed by investment banks pursuing lucrative advisory contracts. Photograph: Eric Luke

The life sciences sector is awash with M&A activity this year with one proposed megadeal swiftly following another.

The frenetic activity is not confined to the companies themselves, or just their executives and shareholders. It has been a veritable feeding frenzy for the dealmakers, the advisers who line up behind each side in any proposed takeover.

However, the particularly tetchy battle between serial acquirer Valeant Pharmaceuticals and its latest target, Botox and eyecare group Allergan – a $53 billion deal, if successful – has thrown a harsh light on some of the tactics employed by investment banks pursuing lucrative advisory contracts.

Allergan this week released a chain of emails which show that Morgan Stanley – since hired as an adviser to Valeant – had initially tried to get hired by Allergan for its defence team and, in its pitch, called the unsolicited bidder a "house of cards".


In an email to Allergan's top executives, Morgan Stanley's global head of M&A Robert Kindler reportedly said the company could be more aggressive in going after Valeant's business model and the value of its stock.

David Horn, a managing director at Morgan Stanley's healthcare group, followed up with an email a few days later. "Part of what Rob [Kindler] is suggesting is to allow him to use his significant relationships with media and analysts to provide a clear and detailed articulation of why Valeant is a house of cards and your investors should not want to take their stock".

At the same time, Morgan Stanley was overweight in Valeant stock , one factor that led Allergan to decide against hiring them.

It is not unusual apparently for banks to pitch for business on both sides of a deal, with different teams working for different clients, which sometimes have divergent interests.

And just to show there are very few “clean hands” in investment banking, a key Allergan adviser, Goldman Sachs, advised Valeant in its Bausch & Lomb purchase only last year.

"Interestingly, they spent lots and lots of time sort of ratifying our business model," Valeant chief executive Mike Pearson noted wryly.

“They stood behind it and obviously said our currency was quite strong in terms of our stock price.”

You wouldn’t want to take what they say too seriously, would you?