Today, Valeant — the Canadian pharmaceutical company that’s teamed up with Bill Ackman to buy Allergan — held a long webcast on why Allergan should accept its newest bid, and there were a few weird moments in which CEO Michael Pearson walked back from bold statements he’s made in the past.
Valeant increased the cash component of its bid for Allergan by $US10, to $US58.30 per Allergan share.
Awkwardness is to be expected in this case, though. Allergan released its own presentation slamming Valeant on Tuesday, and has swallowed a poison pill in order to avoid acquisition. Allergan also accused Valeant of being a rollup — using aggressive acquisition accounting to hide a lack of revenue growth.
“It was a little insulting to be called a Tyco,” Pearson said referencing a rollup from of ages past, “but I guess time will tell.”
The name calling was just the beginning of the presentation’s awkwardness. What stood out more prominently were some of the statements Pearson made in Valeant’s defence.
One moment he was saying he learned the value of spending money on R&D from his time at McKinsey — perhaps an attempt to assuage the fears of those who believe that Allergan’s R&D budget will be culled if it’s bought — the next moment he was saying things like this:
“This industry the R&D productivity has been very very low, so how all companies grow in this industry is through making really good acquisitions and growing those acquisitions after they make them,” adding, “The strategy we’re embarking on is exactly the same as other pharmaceutical companies. We just don’t happen to spend the billions and billions of dollars on R&D that produces very little.”
It’s a defence of a strategy that some find strange, and sets Valeant apart (for better or worse) from other pharma companies.
Pearson also added that Valeant may do 20 acquisitions in the first half of this year.
“Right now we have no constraints over our activities as a company,” he said.
Things also got weird when Pearson was asked about transparency. An analyst asked why Valeant changed its reporting so often. He responded that the company was trying to be as transparent as possible, and tried to compare its reporting changes to Allergan’s with this Fox-News-Graphic-slide (the arrows suggest that we’re comparing equal periods of time, but they’re not).
The weirdest part of the presentation, though, was when Pearson walked back from his former pledge to make Valeant a $US150 billion market cap company.
“We don’t care about getting bigger, we care about getting value for our shareholders,” he said, adding that if that meant splitting up the company in order to continue to pursue aggressive acquisition strategies on a smaller scale, so be it.
This is a quick turnaround from:
“Is the task of growing from $US1 billion to $US40 billion in six years more difficult than the task of growing from $US40 billion to $US150 billion in three? I don’t know,” Pearson said at conversation with Goldman Sachs analyst Gary Nachman earlier this year. “People have always been sceptical and … our investors are rooting us on and others are rooting against us. That’s life.”
Pearson said that the $US150 billion mantra was simply meant to illustrate that Valeant was not going to “sit back and do nothing.”
All this said perhaps we are meant to be confused. Pearson said over and over again that his company isn’t well understood.
“We’re much more like a consumer company, a self pay company, and conventional data sources… it’s [pharmaceutical data] just not applicable to the way we run our business,” he said. “I’m not sure how you guys [Wall Street analysts] think.”
But it doesn’t matter as much what they think as what Allergan shareholders, who will vote on this matter, think. And 60% know that they want more cash from the deal — $180 to $US200 a share according to a survey conducted by JP Morgan.
That’s where the key misunderstanding is. During the presentation Pearson said there was basically no chance Valeant would offer up an all-cash deal for Allergan, he also said that eventually the shares of the combined companies would be far more valuable than cash.
“If this drags out 6 months… this is only going to be to the detriment of Allergan,” said Pearson, adding that waiting for the deal makes no difference to Valeant.
That definitely sounds like a contradiction too.
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