On Thursday pharmaceutical company Valeant did yet another presentation meant to sway Allergan shareholders toward a Valeant takeover, and a question at the end of the presentation regarding Basuch & Lomb — which Valeant acquired in May of 2013 — may give us all a clue as to why Valeant is so eager to get this deal done fast.
The presentation was led by investor Bill Ackman, whose hedge fund Pershing Square owns almost 10% of Allergan and supports the takeover.
Over and over again during the presentation, Ackman expressed dismay that Allergan was delaying the deal — his fund had to take the company to Court and faced hurdles in calling special meetings to address the board. This, he said, was a massive waste of time.
Allergan, for its part, has rejected Ackman and Valeant’s advances and taken a poison pill to ward off any other investor acquiring more than 10% of the company (a not-so-subtle shot at Ackman).
Allergan has argued that Valeant has no organic growth. It says that Valeant acquires companies, cuts their research and development, and then uses the revenue from acquired products to hide that lack of growth.
At the end of the presentation, a listener asked Ackman a simple question. Why not wait to do the deal and let the Bausch & Lomb acquisition annualize to show that it is growing organically? Valeant had, after all, said that it was confident that Bausch & Lomb would continue “to deliver organic growth of >10%… for the remainder of 2014.”
Surely if shareholders saw that, they would feel more confident about a future with Valeant. It would assuage their main fear.
Ackman replied that it wouldn’t be fair for shareholders to let a deal like the one he and Valeant had put on the table pass them by.
The thing about all this, is that Allergan has brought up Valeant’s claim that Bausch & Lomb is growing time and time again.
Instead of holding Bausch & Lomb up as a shining example of Valeant’s success — a company that grew bigger and better under Valeant’s wing — Allergan has held up Bausch & Lomb as an example of Valeant’s failure.
Allergan has argued in its own presentations that while Bausch & Lomb’s revenue has grown, sales are falling. Revenue, it says, is being driven by an unsustainable price hikes.
Moreover, Allergan argues, Bausch & Lomb’s share in key emerging markets is actually on the decline.
Last month Valeant CEO Michael Pearson said he believed that Bausch & Lomb would continue to experience double digit growth, but Allergan’s numbers don’t jive with that. It estimates Allergan’s growth at 5%.
So if you see this the way Allergan does Valeant has every reason to want this deal done as soon as possible. Valeant doesn’t want Bausch & Lomb to disappoint. Besides making Allergan shareholders even more sceptical than they already are, a thing like that could hurt Valeant’s stock price.
And since Valeant stock is part of the deal to buy Allergan, Valeant would then need to put more money on the table to sweeten the deal even more.
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