Allergan deal losing its shine for Valeant shareholders

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 defence from Allergan and Valeant’s own weak second-quarter financial performance have pressured Valeant stock, which is down 6 per cent this year after doubling in 2013.

Allergan's resistance – it has rejected Valeant's overtures and instead has 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.

Novel strategy

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, saying last week that Valeant does not need to buy Allergan and that it may do better by considering other acquisition targets.

Five other large Valeant shareholders, most of whom support the deal, have since said that there were mounting doubts, ranging from concern a transaction would not happen to worries that the pursuit of Allergan would drag out so long as to undermine the benefits.

During the second quarter 57 fund firms exited Valeant stock completely and 148 funds cut their positions, according to data from the Securities and Exchange Commission.

“The share price had gone up a lot and when things started to look a little more difficult, many investors were not ready to stick around and wait for that little extra per cent they might make if and when the deal is consummated,” one shareholder at a New York hedge fund said.

New positions

Still, 81 funds opened new positions and 191 added to their Valeant holdings in the quarter.

Ackman and Valeant both stressed their commitment to completing a deal.

The partners are working to gather the support of owners of 25 per cent of Allergan stock, the level needed to call a special meeting. Ackman holds 9.7 per cent.

But the Securities and Exchange Commission is asking questions about the proposed deal, a source familiar with the matter said last week, and Valeant disclosed this month a new Internal Revenue Service audit of the its US consolidated group for its 2011 and 2012 tax years. – (Reuters)