SCHEDULE 14A INFORMATION
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant ¨ Filed by a Party other than the Registrant x
Check the appropriate box:
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| ¨ | Soliciting Material Pursuant to § 240.14a-12 | |
Allergan, Inc.
(Name of Registrant as Specified In Its Charter)
Pershing Square Capital Management, L.P.
PS Management GP, LLC
William A. Ackman
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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| (1) | Title of each class of securities to which transaction applies:
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| (2) | Aggregate number of securities to which transaction applies:
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| (3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
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 Pershing
Square Capital Management, L.P. Calling
for
a
Special
Meeting
of
Allergan
Shareholders
July 17, 2014 |
 1
Legal Disclaimer
This communication does not constitute an offer to buy or solicitation of an offer to sell any
securities. This communication relates to Pershing Square Capital Management, L.P.’s
(“Pershing Square”) solicitation of written requests to call a special meeting of shareholders of Allergan, Inc.
(“Allergan”) in connection with the proposal which Valeant Pharmaceuticals International,
Inc. (“Valeant”) has made for a business combination transaction with Allergan. In
furtherance of this proposal and subject to future developments, Pershing Square has filed a definitive solicitation
statement with the Securities and Exchange Commission (the “SEC”) on July 11, 2014 (the
“solicitation statement”), Valeant has filed a registration statement on Form S-4
(the “Form S-4”) and a tender offer statement on Schedule TO (including the offer to exchange, the letter of
election and transmittal and other related offer materials) with the SEC on June 18, 2014 (together
with the Form S-4, the “Schedule TO”), and a preliminary proxy statement on
June 24, 2014 with respect to a meeting of Valeant shareholders. Pershing Square and Valeant (and, if a
negotiated transaction is agreed, Allergan) may file one or more solicitation statements, registration
statements, proxy statements, tender or exchange offer documents or other documents with the
SEC. This communication is not a substitute for the solicitation statement, the Schedule TO, or
any other solicitation statement, proxy statement, registration statement, prospectus, tender or exchange offer document or other document
Pershing Square, Valeant and/or Allergan may file with the SEC in connection with the proposed
transaction. INVESTORS AND SECURITY HOLDERS OF VALEANT AND ALLERGAN ARE URGED TO READ THE
SOLICITATION STATEMENT, PROXY STATEMENT(S), REGISTRATION STATEMENT, PROSPECTUS, TENDER OR
EXCHANGE OFFER DOCUMENTS AND OTHER DOCUMENTS FILED WITH THE SEC CAREFULLY IN THEIR ENTIRETY IF
AND WHEN THEY BECOME AVAILABLE AS THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED
TRANSACTION. The solicitation statement is currently being mailed to stockholders of Allergan. Any
definitive solicitation statement or proxy statement(s) or definitive tender or exchange offer
documents (if and when available) will be mailed to stockholders of Allergan and/or Valeant, as
applicable. Investors and security holders will be able to obtain free copies of the solicitation
statement and the Schedule TO and will be able to obtain free copies of these other documents filed
with the SEC by Pershing Square and/or Valeant through the web site maintained by the SEC at
http://www.sec.gov.
Information regarding the names and interests in Allergan and Valeant of Pershing Square and persons
related to Pershing Square who may be deemed participants in any solicitation of Allergan or
Valeant shareholders in respect of a Valeant proposal for a business combination with Allergan
is available in the solicitation statement. The solicitation statement can be obtained free of charge from the sources indicated.
|
 2
Legal Disclaimer (Cont.)
The information in this presentation is for informational purposes only, and this presentation shall
not constitute an offer to sell or a solicitation of an offer to purchase any security or
investment product, nor does it constitute professional advice. This presentation and the information contained
herein is not investment advice or a recommendation or solicitation to buy or sell any securities. All
investments involve risk, including the loss of principal. Pershing Square recognizes that
there may be confidential information in the possession of the companies discussed in this presentation
that could lead these companies to disagree with Pershing Square’s conclusions. The information
contained in this presentation is subject in all respects to the disclosure set forth in the
reports filed by Allergan and Valeant with the SEC. Except where otherwise indicated, the information in this
presentation speaks only as of the date of this presentation. Permission to quote third-party
reports in this presentation has been neither sought nor obtained, nor was consent
obtained or sought with respect to third party statements referenced in this presentation. This presentation is
not all inclusive and may not contain all of the information that you require in order to evaluate Allergan and Valeant and the
transactions described in this presentation. You should review Valeant’s and Allergan’s most
recent annual and quarterly reports and other reports filed by Valeant and Allergan with the
SEC. You should rely on your own independent analysis to assess the accuracy and completeness of all
information contained herein. No representation, warranty or undertaking, expressed or implied,
is or will be made and no responsibility or liability is or will be accepted by Pershing Square
or its affiliates or associates, or any of their respective directors, officers, employees, agents, shareholders or
advisors, as to, or in relation to, the accuracy or completeness of the information contained in the
presentation, or any other information, errors therein or omissions therefrom. By presenting this
information, none of Pershing Square or its affiliates or associates, or any of their respective directors, officers, employees, agents,
shareholders or advisors, is providing investment, legal, tax, financial, accounting or other advice
to you or to any other party. None of Pershing Square or its affiliates or associates, or any
of their respective directors, officers, employees, agents, shareholders or advisors, is acting
as an advisor or fiduciary in any respect in connection with providing this information.
Funds managed by Pershing Square and its affiliates are invested in Allergan common stock and other
securities. Pershing Square manages funds that are in the business of trading – buying and
selling – securities and financial instruments. It is possible that there will be developments in the future
that cause Pershing Square to change its position regarding Allergan, Valeant and the proposed
Valeant-Allergan business combination. Pershing Square may buy, sell, cover or otherwise
change the form of its investment in Allergan for any reason. Pershing Square hereby disclaims any duty to
provide any updates or changes to the analyses contained here including, without limitation, the
manner or type of any Pershing Square investment.
|
 3
Legal Disclaimer (Cont.)
Non-GAAP Financial Measures
This presentation includes certain non-GAAP financial measures, including but not limited to cash
net income and EBITDA (collectively, “non- GAAP financial measures”). These
non-GAAP financial measures should be considered only as supplemental to, and not as superior to, financial
measures prepared in accordance with GAAP. Pershing Square believes that the presentation of these
financial measures enhances an investor’s understanding of Valeant’s and
Allergan’s financial performance. Pershing Square further believes that these financial measures are useful
financial metrics to assess operating performance from period to period by excluding certain items
that it believes are not representative of Valeant’s and Allergan’s respective core
businesses. Pershing Square also believes that these financial measures provide investors with a useful
tool for assessing the comparability between periods of Valeant’s and Allergan’s respective
abilities to generate cash from operations sufficient to pay taxes, to service debt and to
undertake capital expenditures. Pershing Square believes these financial measures are commonly used by
investors to evaluate companies’ performance. However, the use of these non-GAAP financial
measures in this presentation may vary from that of other companies in Valeant’s and
Allergan’s industry. These non-GAAP financial measures should not be considered as alternatives to
performance measures derived in accordance with GAAP. |
 Legal
Disclaimer (Cont.) 4
This presentation contains forward-looking statements. These forward-looking statements
include, but are not limited to, statements regarding Valeant’s offer to acquire Allergan,
Valeant’s financing of the proposed transaction, Valeant’s or Allergan’s expected future value and performance (including expected results of
operations and financial guidance), and the combined company’s future financial condition,
operation results, strategy and plans. Forward-looking statements may be identified
by the use of the words “anticipates,” “expects,” “intends,” “plans,” “should,” “could,” “would,” “may,” “will,” “believes,” “estimates,”
“potential,” “target,” “opportunity,” “tentative,”
“positioning,” “designed,” “create,” “predict,” “project,” “seek,” “ongoing,” “upside,” “increases” or “continue” and variations or similar
expressions and include but are not limited to beliefs expressed regarding future performance. These
statements are based upon the current expectations and beliefs of Pershing Square and are
subject to numerous assumptions, risks and uncertainties that change over time and could cause actual results to differ
materially from those described in the forward-looking statements. These assumptions, risks and
uncertainties include, but are not limited to, assumptions, risks and uncertainties discussed
in Valeant’s and/or Allergan’s most recent annual or quarterly reports filed with the SEC and the Canadian Securities Administrators
(the “CSA”) and assumptions, risks and uncertainties relating to the proposed merger, as
detailed from time to time in Valeant’s filings with the SEC and the CSA. Important
factors that could cause actual results to differ materially from the forward-looking statements we make in this presentation are set forth in other reports
or documents that Valeant and/or Allergan file from time to time with the SEC or the CSA, and include,
but are not limited to: the ultimate outcome of any possible transaction between Valeant and Allergan, including
the possibilities that Valeant will not pursue a transaction with Allergan and that Allergan
will reject a transaction with Valeant; if a transaction between Valeant and Allergan were to
occur, the ultimate outcome and results of integrating the operations of Valeant and Allergan, the ultimate
outcome of Valeant’s pricing and operating strategy applied to Allergan and the ultimate ability
to realize synergies; the effects of the business combination of Valeant and Allergan,
including the combined company’s future financial condition, operating results, strategy and plans
the effects of governmental regulation on Valeant’s and Allergan’s business or potential
business combination transaction; ability to obtain regulatory approvals and meet other closing
conditions to the transaction, including all necessary stockholder approvals, on a timely basis;
Valeant’s and Allergan’s ability to sustain and grow revenues and cash flow from operations
in their respective markets and to maintain and grow their respective customer bases, the need
for innovation and the related capital expenditures and the unpredictable economic conditions in the United States and other markets;
the impact of competition from other market participants;
the development and commercialization of new products;
the availability and access, in general, of funds to meet Valeant’s and Allergan’s debt
obligations prior to or when they become due and to fund their operations and necessary capital
expenditures, either through (i) cash on hand, (ii) free cash flow, or (iii) access to the capital or credit markets;
Valeant’s and Allergan’s ability to comply with all covenants in their respective indentures
and credit facilities any violation of which, if not cured in a timely manner, could trigger a
default of their respective other obligations under cross-default provisions; and the risks
and uncertainties detailed by Valeant and Allergan with respect to their respective businesses as described in their respective reports and documents
filed with the SEC.
All forward-looking statements attributable to us or any person acting on our behalf are expressly
qualified in their entirety by this cautionary statement. Readers are cautioned not to place
undue reliance on any of these forward-looking statements. These forward-looking statements speak only as of the date hereof. None
of Pershing Square or any of its affiliates or associates, or any of their respective directors,
officers, employees, agents, shareholders or advisors undertakes any obligation to update any
of these forward-looking statements to reflect events or circumstances after the date of this presentation or to reflect actual outcomes.
|
 5
Executive Summary
There are two principal reasons we are calling for a
special meeting
1)
To fix the special meeting provisions in Allergan’s bylaws,
which are unduly onerous and anti-shareholder
2)
To remove directors and propose the appointment of new
directors who will engage with Valeant on its compelling
and certain offer to acquire Allergan at a 50%+ premium to
Allergan’s unaffected share price |
 6
I
A Special Meeting is Warranted Given Allergan’s Record of
Poor
Corporate Governance
The Current Offer Justifies Board Engagement and Meets Investors’
“Asking Price”
The Valeant Offer Satisfies the Prevailing M&A Proxy Fight Analytical
Framework Investors and Research Analysts Are Confident in Valeant’s
Operating Model and the Strategic Combination
Risks in Allergan’s Business Model
Allergan’s History of Poor Cost Management
Allergan’s Poor Track Record of Allocating Capital
II
III
IV
V
VI
VII
Table of Contents
Allergan’s Shareholder Unfriendly Compensation Policies
VIII
We Believe There is Significant Downside to Allergan’s Standalone Stock
Price IX |
 I. A
Special Meeting is Warranted Given Allergan’s Record of Poor Corporate
Governance
7 |
 8
To date, Allergan’s board has responded extremely
poorly to Valeant’s highly compelling and certain offer
Has refused to engage with Valeant
Has refused to meet with Pershing Square, Allergan’s
largest shareholder, without management present
Has attacked Valeant’s business model and management
with claims unsupported by factual evidence
A Special Meeting is Warranted Given Allergan’s
Record of Poor Corporate Governance |
 9
Members of the board of directors of a Delaware
corporation faced with a takeover bid are required to
inform themselves of all material information about a
transaction and then act with care in evaluating it
By failing to authorize the board’s advisors to meet with
Valeant to address any of the board’s stated concerns
about Valeant, the board and its advisors have failed to
do properly consider the Valeant transaction
A Special Meeting is Warranted Given Allergan’s
Record of Poor Corporate Governance (Cont.)
The board’s actions have deprived shareholders of the
opportunity to consider this offer |
 10
This board’s recent behavior is consistent with
Allergan’s past poor corporate governance
Shareholders deserve the right to elect a board who will
protect their interests as owners of the company
Shareholders also deserve the right to call a special
meeting free of onerous provisions and impediments
We have proposed a special meeting, which Allergan has
sought to suppress, to enfranchise shareholders
A Special Meeting is Warranted Given Allergan’s
Record of Poor Corporate Governance (Cont.) |
 ISS 2014
US Proxy Voting Guidelines: “In terms of day-to-day governance,
shareholders may lose an important right— the ability to remove
directors or initiate a shareholder resolution without having to wait for
the next scheduled meeting—if they are unable to call a timely special
meeting. Shareholders could also be powerless to respond to a beneficial
offer if a bidder cannot call a special meeting.
Over the past few years…companies have responded to shareholder resolutions
seeking the right to call special meetings by offering management proposals
with stricter requirements…Such restrictions can be used as
anti-takeover devices- impeding the removal of incumbent board
members or delaying a takeover attempt of the company—and, therefore,
run counter to the stated intention of allowing shareholders to call special
meetings.” “Limitations on written consent are clearly contrary to
shareholder interests… Beneficial tender offers may also be precluded
because of a bidder’s inability to take action by written
consent.” 11
ISS Supports Special Meeting and Written Consent Rights as
Important Tools for Empowering Shareholders to Respond to
Attractive Offers |
 “But the value of a shareholder meeting is precisely that it provides a
definitive, authentic, and unassailable answer to the question of what
shareholders want. Not every shareholder is in agreement on every issue, to
be sure—but shareholders in general, and institutional shareholders in
particular, accept that the shareholder vote is the premier mechanism for
the owners of the company to settle significant questions about the
company’s future.” “Engagement can be a very effective
mechanism for providing the board with insight; for settling complex
questions about the company’s future, however, it lacks the definitive
authority of the shareholder vote itself.” ISS analysis on Darden
Restaurants (April 24, 2014): ISS recommendation: FOR the Consent to Request a
Special Meeting 12
ISS Supports Special Meeting and Written Consent Rights as
Important Tools for Empowering Shareholders to Respond to
Attractive Offers (Cont.) |
 25%
of the vote required Timing restrictions
Unduly onerous disclosure
requirements to make request
Restrictions on “similar items”
Restriction on stock sales by
shareholders requesting a
special meeting
13
2012
Shareholder
Proposal
(% of votes cast)
(1)
Call special meetings with
10% of the vote
(55.3%)
2013
2014
Mgmt Rec.
ISS Rec.
Right to act by
written consent
(50.2%)
Separation of
Chairman / CEO
(50.5%)
AGAINST
AGAINST
AGAINST
FOR
FOR
FOR
Placed on ballot a year later but
with substantial restrictions
Placed on ballot a year later but
with substantial restrictions
No action taken, to date
Mgmt
Response
25% of the vote required
Timing restrictions
Restrictions on “similar
items”
N/A
Restrictions
(1)
Votes FOR as % of votes [FOR + AGAINST]
GL Rec.
FOR
FOR
FOR
Allergan has Used Procedural Restrictions to
Neuter Mechanisms for Shareholder Action |
 14
Allergan’s Special Meeting Provision Provides a
Heavily Restricted Right
Requirement
for
shareholders
themselves
to
become
RECORD
OWNERS
Special
meetings
may
not
consider
any
“Similar
Items”
covered
at a
meeting in the previous year
By
which
the
Allergan
board
seeks
to
PROHIBIT
THE
ELECTION
OF
NEW
DIRECTORS
at
a
special
meeting,
even
if
current
Allergan
directors
are
removed
(1)
Unduly onerous disclosure requirements (with ongoing duty to update) for
requesting
shareholders
(e.g.,
2-year
trading
data,
relationships
with
AGN
employees
and
competitors)
Highly unusual requirement for Cede & Co. to itself submit individual
signed meeting requests (rather than granting the usual omnibus proxy)
The board determines, in sole discretion, whether meeting requests are
compliant
(1)
A
shareholder
derivative
lawsuit
is
pending
in
Delaware
challenging
the
Allergan
board’s
attempted
application
of
“Similar
Items”
to
replacing
directors
(In
re
Allergan,
Inc. Stockholder Litigation).
To frustrate shareholder action, Allergan designed unnecessary
restrictions to calling a special meeting |
 25%
of the voting power of the company’s common stock required to
request a special meeting
The
meeting
request
must
be
“IN
PROPER
FORM”,
meaning
the
requesting shareholders must make certain concessions including:
Representations
that
they
INTEND
TO
HOLD
THEIR
SHARES
through
the
date
of the special meeting
Acknowledgements that a sale of their Allergan shares prior to the meeting date
will constitute a corresponding reduction of shares in support of the
special meeting request, even if shares are repurchased prior to the
meeting Shareholders requesting the special meeting must continue to hold at
least
of
the
company’s
shares
until
the
special
meeting
date
or
the meeting may be cancelled
15
Allergan’s Special Meeting Provision Provides a
Heavily Restricted Right (Cont.)
To frustrate shareholder action, Allergan designed unnecessary
restrictions to calling a special meeting
25% |
 Allergan’s Special Meeting Provision Provides a
Heavily Restricted Right (Cont.)
Allergan’s special meeting timing restrictions effectively limit the special
meeting window to only one meeting per year within a narrow three and one
half-month period
Allergan’s board can delay a special meeting by up to
120 days from the date requested
No requests are allowed from 90 days prior to
the anniversary of the previous AGM until the adjournment of the next
AGM Illustrative Timeline:
Oct
Aug
Sep
Jun
Jul
May 7:
Assumes request is
made the first day
after the AGM
Nov
Dec
Jan
Mar
Apr
May
Feb
Management can delay
up to 120 days
Special meeting
window
May 6:
Anniversary of
previous AGM
90-days prior to
anniversary of AGM
Solicitation period:
a. ~2 weeks for SEC
clearance
b.
~4 weeks for proxy
solicitation
~3.5 months
To frustrate shareholder action, Allergan designed unnecessary
restrictions to calling a special meeting
16 |
 17
Allergan’s bylaws as written provide onerous burdens
There are, however, misperceptions that need to be addressed
Shareholders
are
required
to
represent
that
they
intend
to
hold
shares through the special meeting
Shareholders are still permitted to sell their shares after
announcing their intention to hold them, but any shares sold will
not count towards the 25% requirement to call a special meeting
While the sale of a share revokes that share from the special
meeting solicitation, the remainder of that investor’s position will
continue to qualify in support of the meeting
Misperceptions Regarding Calling a
Special Meeting |
 18
25% of the company’s shares are required to request a record date to
act by written consent
Similar unduly onerous disclosure requirements (with ongoing duty to
update) for requesting a record date as those to request a special
meeting
Action by written consent cannot cover “Similar Items”
considered at
a meeting in the previous 12 months, including the election of
directors, or any business to be presented at a meeting to be held
within 90 days
No consents can be dated or delivered until 90 days after delivery of
the request for a record date
Stockholders cannot act by written consent if the Allergan board
calls
a meeting to present a substantially “Similar Item”
A special meeting will allow shareholders to remedy these
problematic governance provisions as quickly as possible
Allergan’s Written Consent Provision Provides the
Illusion of Shareholder Rights |
 19
On April 22
nd
, the same day that Valeant first announced its proposal,
Allergan adopted a poison pill that limits shareholder communication
On June 6
th
, Pershing Square asked Allergan to clarify, among other
things, that the solicitation and receipt of proxies would not trigger
the pill
In
Allergan’s
June
11
th
reply, Allergan refused to respond directly on
this issue
Only after Pershing Square commenced an action in Delaware court
regarding this issue did management confirm that the solicitation of
proxies and certain related activities would not trigger the pill
Allergan’s Board has Taken Steps to Obstruct a
Special Meeting
Allergan’s board and management used ambiguity regarding the
poison pill to discourage the solicitation of proxies |
 20
Allergan shareholders must comply with a series of up
to four procedural steps, each requiring extensive
disclosure and documentation, to submit a request to
call a special meeting
The Allergan board has launched a revocation campaign
against calling a special meeting
To support a revocation, shareholders need only submit
a simple proxy card providing their name and checking a
box in one step
Allergan’s Board has Taken Steps to Obstruct a
Special Meeting (Cont.)
It takes up to four procedural steps to call a special meeting but
only one step to support a revocation
Steps
4
1
Allergan management is soliciting against a fundamental right it
has supposedly granted shareholders
|
 Allergan
states
that
the
distraction
and
time
and
financial
cost
of
holding a meeting are the reasons why a special meeting should not
be held
These costs would go away if Allergan would immediately engage
with Valeant regarding the proposed transaction
21
Allergan’s Argument Against Holding a
Special Meeting
Allergan Schedule 14A filed July 15, 2014 |
 22
Allergan has Ignored its Own
Corporate Governance Guidelines
Despite this clearly stated guideline, Allergan has refused any opportunity to
discuss the Valeant proposal with the lead independent director without Mr.
Pyott being present Pershing Square first requested a discussion with Mr.
Gallagher on April 23 . Allergan complied but included Mr.
Pyott on the call During the call, Mr. Ackman requested a meeting with Mr.
Gallagher in executive session, which Mr. Gallagher rejected
Mr. Ackman proposed a subsequent conversation with Mr. Gallagher, but Mr.
Gallagher refused to provide any contact details
Mr. Ackman offered to speak with Mr. Gallagher with the board’s counsel
present, but Mr. Gallagher again refused
On May 13
th
, Mr. Pyott told Mr. Ackman that he was the only member of the board
authorized to speak with shareholders
[Emphasis added]
—
Allergan’s 2014 proxy supplement
—
Allergan’s 2014 proxy statement
rd |
 23
Shareholder proposal passed
at 2014 AGM to separate
CEO/Chairman roles
Lengthy tenure may
impact independence and
objectivity
No “skin in the game”,
limited alignment with
investors
(1)
ISS recommended AGAINST the re-election of Mr. Gallagher at the 2014 AGM for
failing as Corporate Governance and Compliance Committee Chair to fully implement a shareholder proposal that received majority support
at the 2013 AGM to amend the corporate charter to allow shareholders to act by
written consent. Although the Board did include such a proposal at the 2014 AGM, it included a restriction limiting agenda items and a
requirement that 25 percent of the outstanding shares are required to request a
record date. (1)
Members of Corporate Governance
Committee received lower than average
shareholder support at the 2014 AGM
Allergan’s Board is Characterized by Long Tenures,
Low Stock Ownership, and Weak Governance
Shares Held
Committees
2014 AGM
Name
Title
Board
Tenure (Y)
Age
Shares
(000's)
% O/S
Audit /
Finance
Corp.
Gov.
Org. &
Comp.
Sci. &
Tech.
% Votes
ISS Rec.
GL Rec.
David E.I. Pyott
CEO / Chairman
16
60
234.2
<0.1%
91.4%
FOR
FOR
Michael R. Gallagher
Lead Director
16
68
39.2
<0.1%
C
C
66.7%
AGAINST
AGAINST
Deborah Dunsire, M.D.
Director
8
51
38.0
<0.1%
M
M
95.0%
FOR
FOR
Trevor M. Jones, Ph.D.
Director
10
71
7.5
<0.1%
M
C
88.5%
FOR
AGAINST
Louis J. Lavigne, Jr.
Director
9
65
20.0
<0.1%
M
M
94.9%
FOR
FOR
Peter J. McDonnell, M.D.
Director
1
55
5.6
<0.1%
M
M
88.3%
FOR
AGAINST
Timothy D. Proctor
Director
1
64
5.6
<0.1%
M
M
94.0%
FOR
FOR
Russell T. Ray
Director
11
66
27.2
<0.1%
C
M
94.2%
FOR
FOR
Henri A. Termeer
Director
0
68
2.5
<0.1%
M
M
95.0%
FOR
FOR
Source:
Name, title, tenure, age and committees per Allergan’s proxy statement filed with the SEC March
26, 2014; Shares held per FactSet; ISS recommendation per April 23, 2014 ISS report; Glass Lewis recommendation per April
13, 2014 Glass Lewis report; and vote results per Allergan’s Form 8-K filed with the SEC
May 9, 2014. |
 ISS Has
Identified a High Possibility of Governance Risk at Allergan
24
Source: Institutional Shareholder Services.
(1) May 28, 2014 ISS Governance QuickScore
Profile. This May, ISS awarded Allergan a governance QuickScore of 8,
indicating
a
HIGH
POSSIBLILITY
OF
GOVERNANCE
RISK
(1)
The board did not adequately address a shareholder proposal supported by the majority of
shares voted
ISS recommended AGAINST the re-election of Mr. Gallagher at the 2014 AGM for failing
as Corporate Governance and Compliance Committee Chair to fully implement the
2013 shareholder proposal to allow action by written consent; Gallagher received
33.3% withhold votes
8 of 9 of directors received shareholder approval rates below the average (95%) level at the
most recent shareholder meeting
3 directors received below 90% of the vote
3 of 8 of the non-executive directors on the board have lengthy tenure
The roles of Chairman and CEO have not been separated even though a majority of
shareholders voting approved a proposal to separate at Allergan’s 2014 AGM
Shareholder
rights
(9
/10;
10
is
the
lowest
ISS
ranking)
The company has a poison pill in effect with a 10% trigger threshold
25% of share capital is needed to convene a special meeting or act by written consent
Board
structure
(10
/10;
10
is
the
lowest
ISS
ranking)
There are material restrictions on shareholders’ right to call special meetings or
act by written consent |
 25
The existence of a poison pill makes it impossible for shareholders to
take advantage of Valeant’s exchange offer for Allergan shares
Without a special meeting, Allergan’s board could disenfranchise
shareholders on this transaction until the company’s next AGM
Allergan could delay the company’s 2015 AGM beyond next May
In the meantime, we believe there is significant risk to shareholder
value at Allergan
Valeant may be forced to or choose to abandon the transaction
Allergan’s board could take value-destructive actions to thwart the
Valeant offer
The special meeting provides shareholders an important
opportunity to:
Create a path to completion of a compelling offer
Rectify onerous bylaw and charter provisions that disenfranchise
shareholders
Why a Special Meeting is Necessary to Protect
Shareholder Rights |
 At the
Special Meeting, shareholders can vote to remove Allergan directors
Pershing Square will propose to remove six of Allergan’s nine
directors, to be replaced with new candidates Pershing Square
has identified
If the Allergan board refuses to appoint these new directors,
shareholders of 10% or more can seek a summary election
§223
(c)
provides
in
relevant
part:
A Viable Path to Effect a Deal
26
at
the
time
of
filling
any
vacancy
or
any
newly
created
directorship,
the
directors then in office shall constitute less than a majority of the whole
board (as constituted immediately prior to any such increase), the Court of
Chancery may, upon application of any stockholder or stockholders holding
at least ten percent of the voting stock
. . . summarily order an election to be
held to fill any such vacancies or newly created directorships, or to replace
the directors chosen by the directors then in office
.
.
. ”
“If,
under Delaware General Corporation Law § 223 (c)
|
 27
Receipt of 25%+ support for the special meeting will put
pressure on the board to engage with Valeant
A director’s removal is not just embarrassing but permanently
impairs
the
removed
director’s
“career”
as
a public company
director
Because negotiating the best price for Allergan with Valeant
and other possible buyers could take several months, we
would be prudent to begin negotiations shortly
In our experience, when boards see the writing on the wall,
they do the right thing
A More Sensible Path to Get There Sooner… |
 28
Allergan shareholders get paid sooner
Reduces shareholder exposure to Allergan operational and
deal risk
Reduces risk of financing and equity market instability
An executed merger agreement legally binds Valeant
Allergan will likely have a fiduciary out in a merger agreement
so alternative deals are still possible
Compelling Reasons for Near-Term Engagement |
 29
Betsy Atkins (61)
Chief Executive Officer of Baja LLC
Cathleen P. Black (70)
Senior Advisor at RRE Ventures LLC
Pershing Square is Proposing a Slate of Qualified and
Independent Nominees to Protect Shareholder Interests
Fredric N. Eshelman (65)
Principal of Eshelman Ventures, LLC
CEO of Baja LLC, an independent venture capital firm focused on technology,
renewable sciences, and sciences, since 1994 Co-founded several
successful high tech and consumer companies, including Ascend Communications, which was sold to
Lucent Technologies in 1999 for $24 billion
Formerly CEO and Chairman of Clear Standards, an on-demand enterprise energy
management sustainability software company,
from
2008
to
2009,
at
which
time
it
was
acquired
by
SAP
AG.
Former
Chairman
of
the
Board
of
Directors
of
Third
Screen Media, a company that was eventually sold to AOL
Has served as a director of Polycom, Inc. since April 1999, Schneider Electric, SA
since April 2011, HD Supply Holdings, Inc. since September 2013, and Ciber
Inc. since July 2014. Formerly served on the Boards of Directors of Human Genome
Sciences Inc., HealthSouth Corporation, Vonage Holdings Inc., Towers Watson &
Co., Reynolds American Inc., SunPower Corporation, and Chico’s FAS,
Inc. Has agreed she will remain on only three other boards if elected to Allergan’s board
Senior Advisor at RRE Ventures LLC, an early stage venture capital firm, since
2011, and has served on the boards of two of RRE Ventures LLC’s
portfolio companies, Yieldbot Inc. and Bark & Co Inc. She is also a board member of PubMatic, Inc.
Previously served as President of Hearst Magazines and also served as a director
of the Hearst Corporation from January 1996 until late 2010. Served as
President of USA Today from October 1983 until June 1991 and was a board member of the
parent company, Gannett Co.
Served as a director of Vibrant Media Inc., a global leader of in-content
contextual technology, from October 2012 until 2013, served as an
independent director of International Business Machines Corp. from 1995 until 2010, and served as a director
of The Coca-Cola Company from 1992 until 2010
Principal at Eshelman Ventures, LLC, which is a fund that invests primarily in
early-stage healthcare Served as Founding Chairman of Furiex
Pharmaceuticals, Inc., a drug development company, from its founding in 2009 until
the sale of the company to Forest Laboratories LLC in July 2014 for $1.5 billion.
Founded Pharmaceutical Product Development (PPD), an international contract
research organization, and served as the CEO of PPD until 1989 and from
July 1990 until July 2009, Vice Chairman of its board of directors from July 1993
until July 2009, and Executive Chairman from
July
2009
until
its
sale
to
private
equity
in
2011
for
$3.9
billion.
From
1989
until
1990,
Dr.
Eshelman
was
Senior
Vice
President of Development at Glaxo, Inc. and served on the board of the U.S.
subsidiary of Glaxo Holdings plc. Currently serves as director on several
private company boards. Served on the board of Princeton Pharma Holdings LLC
from February 2008 until May 2010, when it was acquired by Valeant Pharmaceuticals
International, Inc. |
 30
Steven J. Shulman (63)
David A. Wilson (73)
John J. Zillmer (58)
Pershing Square is Proposing a Slate of Qualified and
Independent Nominees to Protect Shareholder Interests
Managing Director of Shulman Ventures, Inc.
Former President and CEO of the Graduate Management Admission Council, a
not-for-profit association dedicated to creating access to graduate
management and professional education, a position he held from 1995 until December 2013
Has served as a Director for CoreSite Realty Corporation since 2010 and Barnes
& Noble, Inc. since 2010. Served as a Director for Terra Industries,
Inc. from 2009 until 2010 and Laureate Education, Inc. from 2002 until 2007.
Worked in various capacities for Ernst & Young LLP from 1978 until 1994. Also
held faculty positions at Queen’s University from 1968 until 1970, the
University of Illinois at Urbana Champaign from 1970 until 1972, the University of
Texas from 1972 until 1978, and Harvard University’s Graduate School of
Business from 1976 until 1977 Former President and CEO of the Graduate
Management Admission Council Former Executive Chairman of Univar, Inc., a
position he held from May 2012 until December 2012. Served as Director,
President and CEO of Univar, Inc. from 2009 to May 2012.
Served
as
Chairman
and
CEO
of
Allied
Waste
Industries,
Inc.
from
2005
until
2008,
at
which
time
Allied
Waste
Industries, Inc.
merged with Republic Services, Inc. Served as Executive VP of ARAMARK Corporation
from 2000 until 2004 Has
served
as
a
Director
of
Veritiv
Corporation
since
June
2014,
Reynolds
American
Inc.
since
2007
and
Ecolab
Inc.
since
2006. Has also served as Director of Liberty Capital Partners, Investment Arm, a
private equity and venture capital firm specializing in startups, early
stage, growth equity, buyouts, and acquisitions, since June 2004 Former
President, CEO and Director of Univar, Inc. Managing Director of Shulman
Ventures Inc., a private equity firm, and has been a strategic advisor to Water Street
Healthcare Partners, a health care private equity firm, since 2008
Served as Chairman of Health Management Associates Inc. from 2013 until January
2014, and served as Chairman and CEO of Magellan Health Services, Inc. from
2003 until 2009 Founded and was Chairman and CEO at Internet Healthcare
Group, LLC, a health care services and technology venture fund, from 1999
until 2003, and served as the Chairman, President and CEO of Prudential Healthcare, Inc. from 1997-1999
Has served as Chairman of CareCentrix, Inc. since 2008, Access MediQuip, LLC since
2009, and Accretive Health, Inc. since 2014, and has served on numerous
privately held company boards |
 31
In addition to providing a forum to vote on the
proposed transaction, the special meeting will allow
shareholders the opportunity to fix Allergan’s
egregious special meeting bylaws
If Allergan’s special meeting bylaws are allowed to
stand, they will be widely promoted by “defense”
firms and will likely be widely adopted in Corporate
America |
 32
We encourage shareholders considering supporting the
Pershing Square special meeting consent solicitation to
contact D.F. King, our proxy solicitor, with any questions
about the process:
Ed McCarthy
D.F. King
(212) 269-5550
emccarthy@dfking.com |
 II. The
Current Offer Justifies Board Engagement and Meets Investors’
“Asking Price”
33 |
 34
On April 22
nd
, Valeant announces initial offer to acquire Allergan for 0.83
Valeant shares and $48.30 per share in cash
On May 12
th
, Allergan rejects initial Valeant offer
On May 27
th
, Allergan publishes presentation attacking Valeant’s
business model and management team
Allergan
publishes
subsequent
presentations
on
June
10
th
and
July
14
th
On May 28
th
, Valeant raises cash component of offer to $58.30 per share
plus a contingent value right for DARPin
On May 30
th
, in response to investor feedback, Valeant raises cash
component
of
the
offer
to
$72.00
per
share
and
commits
to
not
raise
offer
again
without
substantial
engagement
from
Allergan
Valued at Valeant’s current share price, the current offer implies a ~50%+
premium to Allergan’s unaffected trading price and 23x+ EBITDA
multiple On June 23
rd
, Allergan’s board unanimously rejects Valeant’s revised bid
and describes the bid as “grossly inadequate”
History of the Transaction
Pershing Square is Allergan’s largest investor with 9.7% ownership
|
 35
Source:
Company filings and FactSet as of 7/14/14.
Note:
Mean and median values do not include proposed Allergan / Valeant transaction.
Roche / Genetech and Novartis / Alcon transactions excluded because they were
multi-stage acquisitions.
(1)
Total includes upfront and contingent payments at face value.
(2)
(3)
AstraZeneca / MedImmune unaffected date of 4/12/07.
(4)
Valeant / Allergan unaffected date of 4/10/14.
(5)
Sanofi-Aventis / Genzyme unaffected date of 7/1/10.
(6)
Based on most recent offer on 7/14/14.
(7)
Schering financials converted using 3/23/06 exchange rate of 1.198 USD / EUR.
(8)
Bayer / Schering unaffected date of 3/13/06.
(9)
Pfizer / Wyeth unaffected date of 1/22/09.
(10)
Pharmaceutical M&A transactions over $15 billion in last 10 years (ranked by
upfront premium paid) (7)
(10)
(4)
(5)
(3)
(8)
(10)
(9)
The Offer is Compelling Even When Valued at Valeant’s
Current
Share
Price:
The
“Look-Through”
Value
of
the
Deal
(6)
Transaction Value
Premium to
Implied EV /
Implied EV /
Date
($ in billions)
Form of
Unaffected Price
LTM Revenue
(2)
LTM EBITDA
(2)
Acquiror
/
Target
Announced
Upfront
/
Total
(1)
Consideration
Upfront
/
Total
(1)
Upfront
/
Total
(1)
Upfront
/
Total
(1)
/
4/23/07
$16
Cash
54%
11.3x
NM
/
4/21/14
$53
+
CVR
Cash / Stock
48%
+
CVR
7.9x
+
CVR
22.8x
+
CVR
/
2/16/11
$20
/
$24
Cash
48%
/
76%
4.8x
/
5.8x
17.9x
/
21.4x
/
6/20/14
$56
Cash & Stock
42%
10.9x
25.9x
/
3/9/09
$41
Cash & Stock
34%
2.5x
10.3x
/
3/23/06
$20
Cash
33%
2.9x
12.2x
/
1/25/09
$68
Cash & Stock
29%
2.8x
8.2x
/
2/18/14
$25
Cash & Stock
27%
6.5x
34.3x
Mean
$35
$36
38%
42%
6.0x
6.1x
18.1x
18.7x
Median
$25
$25
34%
34%
4.8x
5.8x
15.0x
16.8x
Forest Laboratories LTM revenue and EBITDA pro forma for Aptalis acquisition.
Implied EV based on total transaction value including contingent payments.
|
 36
Proper Way to Value the Proposed Transaction
Valued on an unaffected basis, this transaction is a merger
between a $42 billion equity market cap company, Valeant, and a
$35
billion
company,
Allergan
1
Allergan shareholders will own 44% of the combined company
In such a stock transaction, one cannot value the offer using the
current market value of the acquirer’s common stock
Investors must use the projected value of the combined entity,
considering any cost and revenue synergies, strategic benefits of
the transaction, and likely changes to the multiple investors assign
to the earnings of the combined company in their valuation
Compare this transaction to one where target company
shareholders will own a minimal amount of the combined
company
In
that
case,
this
logic
does
not
apply,
and
investors
could
use
the
current market value of the acquirer's stock to value the offer
(1) Reflects Allergan’s market capitalization as of April 10, 2014, the day before Pershing
Square began its rapid accumulation program, and Valeant’s market capitalization as of
April 21, 2014, the day before Valeant announced its bid to acquire Allergan.
|
 37
Valeant management believes the transaction delivers immediate
accretion
of
~25%
to
Valeant’s
2014
EPS
on
a
pro
forma
basis
(1)
We believe transaction uncertainty created by Allergan’s
obstructionism has kept Valeant’s stock price from reflecting the
transaction’s benefits
We believe merger arbitrage activity has affected Valeant’s stock
price
Short interest is 4x the average level prior to deal announcement
Arbitrage investors require compensation for uncertainty and time
value of money
We believe Valeant’s current stock price does not reflect the
anticipated value of the combined entity, including synergies,
and therefore serves as a poor measure to evaluate the offer
We Believe Valeant’s Current Stock Price Does
Not Reflect the Full Value of the Offer
Based on EPS of $8.55-$8.80 standalone and $10.69-$11.00 pro forma (Valeant management
estimates – May 28, 2014 and June 2, 2014, respectively).
(1) |
 We
believe Allergan’s board has erred in using Valeant’s current stock
price to value the transaction We believe a valuation that takes into account
the fair value of the
combined company, of which Allergan investors will own ~44%, is
the proper methodology for valuing the offer
Per Share
Cash
Consideration
Per Share
Equity
Consideration
$72
$151
$223
$10.85 x 16.8 p/e = $182 per share
38
Using the Fair Value of the Combined Company
Implies a Considerably Higher Offer Value
Valeant
Stock
Price
Exchange
Ratio
$182
0.83
Total
(1)
Source
=
Management
estimate,
Valeant
June
2
presentation
(2)
Source
=
Management
estimate,
Valeant
May
28
presentation
Equity Consideration
Calculation
nd
th
Pro-Forma
2014
EPS
=
$10.85
(1)
Blended
Unaffected
2014
P/E
Multiple
=
16.8x
(2) |
 39
Independent Investment Research Validates Pershing
Square’s Valuation Methodology |
 40
Independent Investment Research Validates Pershing
Square’s Valuation Methodology (Cont.)
Louise Chen, Guggenheim; “Pershing Square and VRX Getting More Aggressive on
Consummating AGN Deal”, June 2, 2014:
“We also think it is compelling that AGN shareholders can get
the $180 deal they wanted now (without assuming an increase
in VRX’s stock price) and this excludes the DARPin CVR as
well as any potential upside from an increase in VRX’s stock
price driven by certainty of a deal. We estimate AGN shares
could be worth as much as $225 if the Street appropriately
values the combined entity, and it would be hard for AGN to
trump this with other potential options, in our view.”
|
 Investor
View of Value -
J.P. Morgan
Survey
(1)
41
J. P. Morgan’s May 16
th
–
May 20
th
survey suggests investors are
seeking a $160 to $200 per share acquisition price:
Following Allergan’s May 12
th
revised long-term plan announcement,
J.P. Morgan conducted a survey of 123 Allergan investors
~77% of those surveyed believe an offer of $160-$200 per share will be
sufficient
Based on the surveyed investors’
expected value of the combined
company, Valeant’s current offer is worth $188-$221
Combined Company
Stock Price
$140
$180
Implied Offer Value
$188
$221
We Believe the Current Offer Meets Investors’
“Asking Price”
(1)
60% of survey respondents believe the combined company
would be worth $140 to $180 per share |
 42
Pharmaceutical M&A transactions over $15 billion in last 10 years (ranked by
upfront premium paid) Even More Compelling Deal When Valued at the Fair Value
of the Combined Company: The “Fair Value”* of the Deal
*: Assumes fair value of $223 per
share as per page 38av c
+-.
Transaction Value
Premium to
Implied EV /
Implied EV /
Date
($ in billions)
Form of
Unaffected Price
LTM Revenue
(2)
LTM EBITDA
(2)
Acquiror
Target
Announced
Upfront
/
Total
(1)
Consideration
Upfront
/
Total
(1)
Upfront
/
Total
(1)
Upfront
/
Total
(1)
4/21/14
$70
+
CVR
Cash / Stock
91%
+
CVR
10.6x
+
CVR
30.3x
+
CVR
4/23/07
$16
Cash
54%
11.3x
NM
2/16/11
$20
/
$24
Cash
48%
/
76%
4.8x
/
5.8x
17.9x
/
21.4x
6/20/14
$56
Cash & Stock
42%
10.9x
25.9x
3/9/09
$41
Cash & Stock
34%
2.5x
10.3x
3/23/06
$20
Cash
33%
2.9x
12.2x
1/25/09
$68
Cash & Stock
29%
2.8x
8.2x
2/18/14
$25
Cash & Stock
27%
6.5x
34.3x
Mean
$35
$36
38%
42%
6.0x
6.1x
18.1x
18.7x
Median
$25
$25
34%
34%
4.8x
5.8x
15.0x
16.8x
/
/
/
/
/
/
/
/
/
(7)
(10)
(4)
(5)
(3)
(8)
(10)
(9)
(6)
Source:
Company filings and FactSet as of 7/14/14.
Note:
Mean and median values do not include proposed Allergan / Valeant transaction. Roche / Genetech and Novartis /
Alcon transactions excluded because they were multi-stage acquisitions. (1)
Total includes upfront and contingent payments at face value. (2)
Implied EV based on total transaction value including contingent payments. (3)
Valeant / Allergan unaffected date of 4/10/14. (4)
AstraZeneca / MedImmune unaffected date of 4/12/07. (5)
Sanofi-Aventis / Genzyme unaffected date of 7/1/10. (6)
Based on most recent offer on 7/14/14.
(7)
Schering financials converted using 3/23/06 exchange rate of 1.198 USD / EUR. (8)
Bayer / Schering unaffected date of 3/13/06. (9)
Pfizer / Wyeth unaffected date of
1/22/09. (10)
Forest Laboratories LTM revenue and EBITDA pro forma for Aptalis acquisition. |
 Dow Jones
04/10/2014
07/14/2014
% Change
Implied AGN
share price
Look-Through Price as
a % premium to
implied price
Fair Value as
a % premium to
implied price
S&P 500
1,833.1
1,977.1
7.9%
$125.79
37.1%
77.3%
S&P 1500 Pharma
523.0
564.7
8.0%
$125.93
37.0%
77.1%
Dow Jones
16,170.2
17,055.4
5.5%
$123.01
40.2%
81.3%
Allergan Proxy Peers
100.0
111.4
11.4%
$129.92
32.8%
71.6%
43
Source:
FactSet.
(1)
Implied Allergan share price based on relative change in index price from
unaffected price of $116.63 on April 10, 2014. (2)
Per Allergan proxy statement dated March 26, 2014 (Abbott Laboratories, Amgen,
Biogen Idec, Bristol-Myers Squibb, Celgene, Eli Lilly, Endo Health Solutions,
Gilead Sciences, Johnson & Johnson, St. Jude Medical, Stryker Corporation, and
Valeant Pharmaceuticals). Excludes Forest Laboratories due to acquisition by Actavis
on July 1, 2014.
(2)
Peer movements since the unaffected date imply a 33% to 72%
premium over a standalone Allergan today
(1)
Even Adjusted For Peer Movements, the Offer is
a Large Premium |
 The Offer
Represents a Large Premium to Analysts’ Pre-bid 12-Month Price
Targets The
offer
is
a
28%
to
65%
premium
to
analysts’
12-month
price
targets prior to Valeant’s initial public offer
Fair Value
Median
Look-Through Price
(1)
(1)
$130
$138
$145
$150
$125
$142
$135
$135
$109
$130
$135
$125
$140
$145
$124
$140
$130
$132
Prior to 4/21/2014
Broker
12-Month Target Price
Bank of America
Barclays
BMO Capital Markets
Buckingham Research Group
Cowen and Company
Credit Suisse
Goldman Sachs
Guggenheim Securities LLC
JPMorgan
Piper Jaffray
RBC Capital Markets
Sanford C. Bernstein & Co
Sterne, Agee & Leach
Stifel
SunTrust Robinson Humphrey
Susquehanna Financial Group
UBS
William Blair & Co
Median
12 mo.
Price Target
$172.50 offer as a %
premium
$223 offer as a %
premium
Median
$135.00
27.8%
65.2%
Source:
Bloomberg, FactSet.
Note:
$172.50/share offer based on closing prices as of July 14, 2014.
(1)
Currently advising Allergan on the Valeant proposal.
44 |
 Valeant’s revised proposal offers substantial value to AGN
shareholders and is highly superior to AGN’s standalone value
What Valeant’s proposal offers:
$72 of cash per share
$9.01 of Valeant 2014 earnings
per AGN share
(1)
+ DARPin CVR
What standalone AGN offers:
$0 cash
2014 EPS Guidance = $5.69
Or, if $72 of cash is reinvested in
additional VRX shares at $121/share:
$15.46 of Valeant 2014 earnings
per AGN share
(2)
+ DARPin CVR
(1)
$9.01= 0.83 x 10.85 2014 Pro Forma VRX EPS
(2)
$15.46 = 1.425 x 10.85 2014 Pro Forma VRX EPS
272% increase in earnings
per AGN share
45
How Some Large Shareholders Are Thinking
About The Transaction |
 The
Valeant proposal offers ~$15.50 of EPS in 2014. Allergan offers ~$14 of EPS in
2019 What Valeant’s proposal offers:
What standalone AGN offers:
2019 EPS Guidance = ~$14
$0 cash
If $72 of cash is reinvested in
additional VRX shares at $121/share:
2014 $15.46 earnings per AGN
share
(1)
+ DARPin CVR
(1)
$15.46 = 1.425 x 10.85 2014 Pro Forma VRX EPS
46
We Believe Valeant Offers More Value in One Year than
Standalone Allergan is Projected to Offer in Five Years |
 III. The
Valeant Offer Satisfies the Prevailing M&A Proxy Fight Analytical
Framework
47 |
 Descriptions
Score
Transaction
premium
48% premium to Allergan's unaffected closing share price of $116.63 on April 10,
2014 (see page 101 for unaffected price chart), the final trading day
before Pershing Square started to rapidly accumulate shares
Transaction
multiple
7.9x EV/LTM Revenue
22.8x EV/LTM EBITDA
43.0x LTM P/E
Unaffected
standalone price
Offer represents ~33% -
40% premium over Allergan’s standalone price today
Analyst price
targets
Valeant/Pershing Square's cash and stock offer is a 28% premium to the median
Allergan equity research analyst price target prior to Valeant/Pershing
Square’s initial public offer
(1)
Deal spread
Currently trading 3.2% below the offer
(2)
Long-term investor
feedback
Fundamental investors reportedly seeking $180 take-out price
Source:
Company SEC filings, Bloomberg, FactSet.
(1)
Based on analyst price targets prior to April 21, 2014.
(2)
Based on closing price of $167.02 as of July 14, 2014 close.
48
Adequacy of the Offer Scorecard:
Look-Through Price |
 Descriptions
Score
Transaction
premium
91% premium to Allergan's unaffected closing share price of $116.63 on April 10,
2014 (see page 101 for unaffected price chart), the final trading day
before Pershing Square started to rapidly accumulate shares
Transaction
multiple
10.6x EV/LTM Revenue
30.3x EV/LTM EBITDA
56.3x LTM P/E
Unaffected
standalone price
Offer represents ~72% -
81% premium over Allergan’s standalone price today
Analyst price
targets
Valeant/Pershing Square's cash and stock offer is a 65% premium to the median
Allergan equity research analyst price target prior to Valeant/Pershing
Square’s initial public offer
(1)
Deal spread
Currently trading 25.1% below the offer
(2)
Long-term investor
feedback
Fundamental investors reportedly seeking $180 take-out price
Source:
Company SEC filings, Bloomberg, FactSet.
(1)
Based on analyst price targets prior to April 21, 2014.
(2)
Based on closing price of $167.02 as of July 14, 2014 close.
49
Adequacy of the Offer Scorecard:
Fair Value |
 Certainty
of the offer
Adequacy of the
offer
Appropriateness
of the board’s
response
Partnership with Pershing Square and action to date indicate Valeant is a
serious buyer
No financing contingency; Tender offer launched; Sale of assets to
comply in advance with likely HSR issues; Initiated HSR review
Investors and research analysts endorse Valeant’s operating model and
the strategic merits of the deal
Offer is compelling by transaction multiples and premiums
The offer represents an attractive premium to the “unaffected”
standalone price today absent Valeant’s offer, as well as to the
12- month analyst price targets before the initial bid
Offer
meets
the
“asking-price”
of
long-term
investors
Downside risk is significant
To date, the Allergan board has not responded properly by refusing to
engage with Valeant to perform due diligence on the transaction
proposal, and by attempting to thwart Pershing Square’s special
meeting process to determine the will of shareholders
50
The Valeant Offer is Certain and Attractive |
 IV.
Investors and Research Analysts Are Confident in Valeant’s Operating Model
and the Strategic Combination
51
*
*
*
*
*
*
*
*
*
*
**************************** |
 52
Substantial Overlap of Ownership
The large percentage of Allergan shareholders who also own
Valeant stock reflects their confidence in Valeant’s currency
“We
believe
this
deal
will
eventually
go
to
AGN
shareholders,
who
are
interested
in
maximizing
value.
Given
the
reported
over
50%
overlap
in
VRX/AGN
shareholders,
we
believe
that
most
AGN
shareholders
are
familiar
enough
with
Valeant’s
business
model
to
invest
in
the
combined
entity.”
Alex Arfaei, BMO; “New Offer in Line With Our Expectations; Good Sale of Assets,
Impressive Presentation”, May 28, 2014: |
 53
Research Analysts’
Recommendations Suggest
that Valeant’s Stock is Undervalued
Source:
Bloomberg.
Note:
Most recent recommendations and price targets as of July 14, 2014.
Median analyst price target of $168 per share represents a 39%
premium to Valeant’s current share price
Broker
Price Target
Rec.
Aegis Capital Corp.
$180
Buy
BMO Capital Markets
$165
Outperform
Canaccord Genuity Corp
$168
Buy
Cantor Fitzgerald
Buy
CIBC World Markets
$160
Sector Outperform
CRT Capital Group
$170
Buy
FBR Capital Markets
$153
Outperform
Guggenheim Securities LLC
$178
Buy
Jefferies
$154
Buy
JPMorgan
$180
Overweight
Morningstar, Inc
Buy
Paradigm Capital Inc
$175
Buy
Piper Jaffray
$151
Neutral
Stifel
$165
Buy
Susquehanna Financial Group
$170
Positive
TD Securities
$160
Buy |
 Goldman Sachs
was Very Bullish on Valeant Prior to Becoming Allergan’s Advisor and
Suspending Analyst Coverage As noted in Allergan’s recent 14D-9,
Goldman Sachs has underwritten $22.35 billion of equity and debt offerings for
Valeant
54
Twelve days before Valeant’s initial offer for Allergan,
Goldman Sachs published a final research report on
Valeant, with a Buy rating, a $164 price target, and
placement on the firm’s “Conviction List”
|
 55
Research Analysts Are Confident in Valeant’s
Operating Model and the Strategic Combination
“We
believe
that
Valeant
is
in
a
strong
position,
both
with
respect
to
its base business and relative to the strategic growth opportunity that
exists across the Pharmaceutical industry”
Lennox Gibbs, TD Securities; “Increased Clarity and a New Bid”, May 29,
2014: “The CEO’s extensive management consulting experience may
provide unique insight into how to best avoid mistakes made by larger
companies in the industry. For the last several years, since the
merger with Biovail, Valeant has executed on an ambitious business
development strategy that is unique among peers.”
William Tanner, FBR; “Allergan Bid Upped Again, and Pershing Square Goes All In
for Stock-- Looks Like a Best and Final Offer to Us”, June 2,
2014: |
 56
Research Analysts Are Confident in Valeant’s Operating
Model and the Strategic Combination (Cont.)
“Whether the acquisition happens or not, however, we believe that
the
Valeant business model remains valid and we do not believe that Allergan
management’s allegations regarding Valeant’s strategy are
valid.” Raghuram Selvaraju, Aegis Capital; “Valeant Ups the Ante in
Allergan Acquisition Bid”, May 28, 2014:
“We don’t think that Valeant promotionally starves its brands, but rather
makes selective investments in highest value programs like Luzu and local
DTC…the roll-up strategy is difficult, and Valeant’s execution
know-how and experience
is
an
intangible
asset
that
will
continue
to
drive
value,
in
our
view.”
Irina Rivkind Koffler, Cantor Fitzgerald; “We Like Standalone Business, with AGN
Upside; Maintain BUY, Increase PT to $209”, June 2, 2014:
“Valeant has a strong track record of creating value by acquiring
firms with
solid product portfolios and investing only in late-stage/low-risk R&D.
Management has proven that M&A can lead to better returns than
early-stage R&D given Valeant’s ability to strip out
costs.” Stephanie Price, CIBC; “Growth on Steroids: Initiating
Coverage at Sector Outperformer”, May 20, 2014:
|
 57
Research Analysts Are Confident in Valeant’s Operating
Model and the Strategic Combination (Cont.)
“75% believe Valeant’s $2.7 Bn synergy target for a potential AGN
acquisition is realistic.”
Chris Schott, J. P. Morgan; “Buyside Survey Results Suggest Broad Expectation of
a VRX- AGN Transaction”, May 23, 2014:
“We see the opportunity for significant cost synergies with this deal given
the overlap in the VRX and AGN businesses and the possibility of tax
savings
given VRX's mid-single digit corporate tax rate.”
“Media-reported cost savings target of ~$2.5 bn would represent ~68%
of AGN's combined 2014 SG&A and R&D expenses but we believe this
could be achieved given the significant overlap in the two companies
cosmetic and ophthalmology businesses and VRX's strong track record in
achieving synergies from previous acquisitions. Simply removing this
level of expenses
from our AGN model by 2016 would suggest a DCF valuation for AGN
of
over $230/share, with additional upside possible when tax synergies are
factored in.”
Vamil Divan, MD, Credit Suisse; “VRX Takeout Could Complete a Rapid AGN
Turnaround”, April 21, 2014: |
 (1)
Measured as of May 30th, 2014, other shareholders were
offered an exchange ratio of 1.38 VRX shares per one AGN share. This ratio assumes AGN shareholders reinvested their cash consideration
in VRX stock at the then current market price of $131 per share.
(2)
~$600mm is measured as of May 30, 2014.
Pershing Square’s All Equity Commitment Demonstrates
Confidence in the Value of the Combined Company
Pershing Square has committed to take all stock in the
transaction at an exchange ratio of 1.22659 VRX shares
per one AGN share
Pershing Square’s exchange ratio is inferior to the offer
available to other Allergan shareholders
(1)
This commitment transferred ~$600 million of immediate
value to other shareholders in the transaction
(2)
Only if the value of the combined company reaches $180
per share will the value of Pershing Square’s offer equal
that of other holders
Pershing Square’s all stock election increased cash
available to other shareholders by ~$2 billion
58 |
 V. Risks
in Allergan’s Business Model 59
*
*
*
*
*
*
*
*
*
*
***************************** |
 Risks in
Allergan’s Business Model 60
Highly concentrated product portfolio
Large exposure to upcoming patent expirations
Large price increases have significantly
contributed to revenue growth
Limited to any disclosure about early-stage R&D
|
 Highly
Concentrated Portfolio 61
Allergan’s top four drugs account for 64% of total revenue
Source: Sales for top drugs per Valeant management estimates. Total AGN sales per
consensus estimates as of June 19, 2014. Botox
32%
Restasis
16%
Lumigan
Franchise
9%
Alphagan
Franchise
7%
Other
Products
36% |
 High
Exposure to Patent Cliffs Allergan is currently benefiting from a window of
patent exclusivity, but by 2027 Allergan will lose exclusivity on
products comprising ~37% of current revenue
Products maintaining exclusivity or
durability
(currently marketed products only, shown as a % of 2014E revenue)
Source:
Allergan
management
commentary,
Wall
Street
research,
Pershing
Square
estimates.
Total
2014E
sales
are
as
per
Wall
Street
consensus
estimates.
Note:
Assumes
100%
of
revenue
lost
in
year
of
patent
expiration.
Uses
year
of
patent
expiration
in
the
U.S.
as
a
proxy
for
global
patent
expirations,
except
for
Ganfort
which
uses
the
year
of
patent
expiration
in
the
EU
since
the
drug
is
not
marketed
in
the
U.S.
Assumptions
for
year
of
patent
expiry
by
drug
are
Restasis
2024,
Alphagan
2022,
Lumigan
2027,
Aczone
2016,
Ganfort
2022,
Ozurdex
2024,
Latisse
2024,
Lastacaft
2029.
Patent
data
per-Allergan
10-K
and
FDA
orange
book.
62 |
 Risk of
successful patent challenges greatest for “Life Extension”
patents
Allergan recently received negative news on Latisse, which
employs the same active ingredient used in another AGN
product, Lumigan
Allergan loses Latisse patent fight, jeopardizing up to $200M in
sales
“The U.S. Court of Appeals for the Federal Circuit in Washington has
deemed a pair of Latisse patents invalid, paving the way for Novartis'
Sandoz unit and the generics maker Apotex to sell their copies. The patents
on Latisse--a variation of Allergan's Lumigan, used to treat
glaucoma--cover ways to apply the drug to promote eyelash growth.
But that growth is a ‘known potential side effect’
of glaucoma treatments, the court ruled,
rendering Allergan's patent claims obvious.”
-
Fierce Pharma; June 11, 2014
63
Generics Manufacturers May Challenge
Existing Patents |
 Patent
Cliffs + Concentration = High Risk 64
In 2013, Allergan’s stock fell by 19% within one week, in large
part due to increased risk of loss of exclusivity for Restasis,
one of Allergan’s largest products
6/20/13: FDA
issues guidance
on Restasis
generic pathway
Source: Bloomberg.
Share Price Performance of AGN from 5/1/13 to 6/30/13 |
 Acuvail
Elestat
Lastacraft
Betagan
Zymaxid
Pricing has Driven Growth
65
Allergan has relied on large price increases to drive revenue
growth, both historically and in 2014
7-9% Price
Increases in 2014
10%+ Price
Increases in 2014
Alphagan
Combigan
Lumigan
Restasis
Aczone
Tazorac
Avage
Azalex
Source: Wolters Kluwer: Medi-Span Price Rx and Valeant management
estimates. 100%+ Price
Increases in 2014
Pred-G
Pred Miled
FML Forte
Bleph-10 |
 60%
85%
64%
18%
Allergan Durable
% of Portfolio
Valeant Durable
% of Portfolio
Allergan Top 4
Products
Valeant Top 10
Products
Valeant has a Lower Risk Product Portfolio
66
Valeant’s portfolio is both more durable and more diversified
Durability
Product Concentration
Source: Valeant management estimates. |
 60%
74%
64%
29%
Standalone
Allergan
PF Allergan +
Valeant
Standalone
Allergan
PF Allergan +
Valeant
67
The combined drug portfolio is expected to be more durable and
more diversified
Source: Valeant management estimates.
Durability
Product Concentration: Top 4
Drugs % of Total Sales
More durable
More
diversified
We Believe a Combination with Valeant Reduces
Portfolio Risk |
 Allergan’s Black Box R&D Model
68
No project-level expense guidance
No guidance on expected returns from R&D
investment
Limited visibility of R&D creates uncertainty
History of losses outside of low-risk projects
Compensation program promotes R&D spending
without providing accountability for return on
investment |
 Limited
Project Level R&D Guidance 69
Despite a major forecasted increase in R&D spending, Allergan
has not provided guidance on major areas of increased
expenditure and the expected return on investment
“Also, as a quick reminder, I have explained on several occasions
that in the coming five or so years, there will be a major step-up in
R&D from roughly $1 billion-plus this year to roughly $1.5 billion
some five years from now.”
David Pyott, Allergan Chairman and CEO; Q2 2013 Earnings Call, July 31, 2013:
“And
then
as
a
second
question,
just
wondering
if
--
one
of
the
criticisms that we've heard of Allergan, at least as it relates to
pipeline and the revelation of Phase II data, just wondering if there
will be more disclosure around that going forward, or are we going to
stick to sort of the same process of disclosure you simply -
-
primarily providing information for Phase III products at medical
meetings?”
Seamus Fernandez, Leerink Swann; May 12, 2014 Special Call:
|
 70
Limited Project Level R&D Guidance
While the sales potential from Allergan’s R&D pipeline remains opaque,
peers such as Astra Zeneca give more detailed disclosure:
Source: Astra Zeneca May 2014 investor presentation. |
 Limited
Visibility of R&D Creates Uncertainty 71
“Given you had to set back both these expectations of products
[Latisse for Scalp and DARPin] since you talked about last year at
your R&D day. How should we think about your commitment to this
growth and are you going to have to look elsewhere to drive this? Or
are you still confident that you can grow Allergan organically from a
revenue and earnings standpoint?”
Shibani Malhotra, RBC Capital Markets; Q1 2013 Earnings Call, May 1, 2013:
Lack of visibility and risk inherent in an early-stage R&D model
creates uncertainty for Allergan investors |
 72
Allergan’s experience with DARPin demonstrates lack of visibility
and risk inherent in an early stage R&D model
“Scott, I don't mean to beat a dead horse, but if you could just provide
us a little bit more color on what the magnitude of the benefit you saw
over LUCENTIS. You said you did see that in some patients, maybe
not in others. And what gives you confidence that the program will be
delayed one to two years versus just a complete bust?”
Jami Rubin, Goldman Sachs; Q1 2013 Earnings Call, May 1, 2013:
“But if that's the case, I guess I'm a little curious, why were you so
bullish on this product four months ago, five months ago? It made it
seem like you had enough data to be very bullish on the product and
now you're kind of saying, ‘Well, maybe, we didn't have enough
information?’”
Marc Goodman, UBS; Q1 2013 Earnings Call, May 1, 2013:
Limited Visibility of R&D Creates
Uncertainty -
DARPin
AGN shares fell 13% the day of Allergan’s Q1 2013 earnings call
|
 History of
Losses Outside of Low-Risk Projects 73
Source: Valeant April 2014 investor presentation. |
 74
Source: Valeant April 2014 investor presentation.
History of Losses Outside of Low-Risk Projects |
 Incentives
Matter David Pyott is eligible to receive a bonus up to 25% of his base
salary
if the company exceeds its annual R&D spending target
The R&D target rewards Allergan executives for R&D spending
irrespective of the returns on that investment
By contrast, at Merck, management is compensated for achieving
pipeline ROI and NPV goals
Poorly Designed R&D Reinvestment Compensation Target
Allergan
Management
Annual
Bonus
Targets
(March
26,
2014
Proxy)
David Pyott, Allergan Chairman and CEO; Q3 2009 Earnings Call:
75
“Of course, R&D is not about the expenditure but it is about
results.”
“Of course, R&D is not about the expenditure but it is about
results.” |
 Allergan’s June 30th Pipeline Update Highlighted Flawed
R&D Strategy And Misunderstanding of Evolving Markets
Despite spending $1.3 billion on product acquisitions and $2.8 billion
on R&D over the last three years, it remains unclear whether Allergan
has any late-stage programs capable of moving the needle
Anti-VEGF DARPin
Efficacy
data,
to
date,
lack
sufficient
clinical
differentiation
vs.
incumbents
Significant safety concerns persist and may ultimately preclude adoption
Two entrenched market leaders with same the mechanism-of-action
(anti-VEGF) limit market penetration if approved
Broad use of Avastin a major threat to marginally differentiated, late
entrants Anti-PDGF,
gene
therapy
and
combination
products
in
others’
pipelines
competing
for
increasingly crowded AMD market
Semprana/Levadex
Overpaid for an asset that lacks clinical differentiation
Approval delays eroding opportunity as generics and new branded products enter
market Development of highly effective prophylactics (GCRP mAbs) may shrink
opportunity Ozuredex
Narrow label limits use to select patient sub-populations
Potential new competitor, Iluvien, as early as year-end 2014
Bimatoprost Sustained-Release
Use will be limited to patients who prefer injection in eyeball to daily
drops Outstanding pricing question: similar to generics or branded
agents? 76 |
 77
Marketed anti-VEGF Ab for wet AMD
Key pipeline product candidates for wet AMD
Source: Company filings, Clinical publications and Wall Street equity
research. (1)
Data taken from Phase 3 ANCHOR study involving Q4W Lucentis
The Crowded Competitive Landscape Raises Significant
Questions About DARPin’s Market Potential That Are Amplified By
Program Delays And Marginal Phase 2 Data
(2)
Data taken from Phase 3 VIEW-2 study comparing Q4W Eylea with Q4W
Lucentis (3)
Data taken from 2011 CATT study that was conducted by the NEI comparing Q4W Avastin
with Q4W Lucentis
Product
Company
Developmental
Status
MOA
Combo With
VEGF?
Efficacy
Dosing regimen
Safety profile
AGN 150998
(Anti-VEGF
DARPin)
Allergan/
Molecular Partners
Phase 2b
Pan anti-VEGF
DARPin
No
2.0mg dose: +8.2 letters at 16 weeks
1.0mg dose: +6.3 letters at 16 weeks
(vs +5.3 letters w/ Lucentis)
Doses at the start of trial and after 4 and
8 weeks
(vs additional doses after 12 and 16
weeks w/ Lucentis)
2.0 mg dose: Ocular Inflammation in 8%
of patients
1.0 mg dose: Ocular inflammation in
13% of patients
Fovista
Novartis/
Ophthotech
Phase 3
Anti-PDGF
aptamer
Yes
1.5mg Fovista/Lucentis: +10.6 letters at
24 weeks
(vs +6.5 letters w/ Lucentis alone)
Currently investigating once a month
regimen for first 12 months, followed by
once every two months regimen for next
12 months
No imbalances in AEs or SAEs (ocular
or systemic) and no difference in
intraocular pressure between arms
ESBA-1008
Novartis/
Alcon
Phase 2
Pan-VEGF
inhibitor
No
Phase 2 efficacy data expected in
4Q2014
Currently investigating 7 injections vs 8
injections w/ Eylea in Phase 2 study
Phase 1/2 trial showed that doses were
well tolerated as assessed by the
absence of adverse events within 7
days of injection
ALG-1001
Allegro Ophthalmics
Phase 1/2
Integrin
inhibitor
No
+5 letters sustained for 3-4 months
demonstrated in subset of 15 wAMD
patients
Currently investigating regimen of three
monthly injections in six-month dose-
ranging study
No serious or significant adverse events
reported in Phase 1 human safety study
with DME patients
Ava-101
Avalanche
Phase 1/2
Anti-VEGF
No
Low dose: +8.7 letters after 52 weeks
High dose: +6.3 letters after 52 weeks
Currently investigating safety and
efficacy of a single injection in dose-
escalating study
Phase 2a top-line data expected in mid
2015
DE-120
Santen
Phase 1/2
Dual
VEGF/PDGF
inhibitor
No
Phase 1/2 efficacy data expected in
2Q2014
Currently investigating in dose-
escalating, sequential-cohort Phase 1/2
study
Phase 1/2 safety data expected in
2Q2014
Efficacy
Product
Company
Loss of <15 letters in
VA at 52 weeks
Gain of >15 letters in
VA at 52 weeks
Mean change in VA from
baseline at 52 weeks
Dosing regimen
Safety profile
Lucentis
(1)
Roche/
Novartis
91%
31%
+6.3 letters
Once a month
Arteriothrombotic: 4.7%
Death: 1.4%
Eylea
(2)
Regeneron/
Bayer/
Santen
95%
31%
+8.9 letters
(vs +9.4 letters w/ Lucentis)
Once a month for first 3 months,
then every 2 months thereafter
Arteriothrombotic: 3.3%
(vs 3.2% for Lucentis in head-to-head)
Avastin*
(3)
Roche
94%
31%
+8.0 letters
(vs +8.5 letters w/ Lucentis)
Once a month and PRN
Arteriothrombotic: 2.1%
(vs 2.3% for Lucentis in head-to-head)
Death: 1.4%
(vs 1.3% for Lucentis in head-to-head)
*Avastin usage for wet AMD is off-label |
 VI.
Allergan’s History of Poor Cost Management
78
XXXXXXXX |
 Allergan’s SG&A spending is well above other specialty and
global pharmaceutical companies
SG&A Expense as % of Total Revenue (2013)
Avg. (ex-AGN) = 26.2%
79
Over 800 bps above next highest peer
and over 1,200 bps above peer average
Source: Company filings, Pershing Square estimates.
Allergan’s Elevated SG&A Expense
38.5%
30.4%
29.5%
27.5%
26.5%
26.0%
22.4%
21.4%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
Allergan
Shire
UCB SA
Pfizer
Merck
Merck
KGaA
Valeant
Actavis |
 Jami
Rubin, Goldman Sachs; Q4 2013 Earnings Call, February 5, 2014: Analysts Recognize
the Cost Opportunity but have Repeatedly Questioned Management's Commitment
to Solving the Problem
“You've talked about bringing your SG&A down to 35% over the last
couple
of
years.
But
[I]
understand
why
you
are
spending
as
much
as
you
did in terms of SG&A, but are you still thinking of taking the SG&A
amount down to 35%? And what do you mean by medium-term and near-
term because it's been four years now you've been saying that. How
should we be thinking about it?”
“But in your contingency plans, I would imagine that there will be a lot of
room to restructure, given how high your SG&A ratio is. Can you talk
about how variable your costs are and how realistic it would be to bring
down those costs…?”
Shibani Malhotra, RBC Capital Markets; Q4 2011 Earnings Call, February 2, 2012:
Jami Rubin, Goldman Sachs; Q2 2013 Earnings Call, July 31, 2013:
“And do you see a scenario where you could bring your SG&A ratio to
the low 30s from, what 37%, 38%?”
80 |
 “Maybe
a
last
comment
on
SG&A,
we’ve
said
for
some
time
now,
we
expect
this
to
gradually
trend
down
into
the
mid-30s.
As
a
company,
we’ve
historically
been
very
high.”
David Pyott, Allergan Chairman and CEO; Q3 2010 Earnings Call, Nov. 1, 2010:
“Going back to SG&A leverage, we've always stated that
our target in the midterm is the mid-30s, so I'd reiterate
that. And clearly, this is not by cutting. It just means the
rate of increase for SG&A is lower than the rate of sales
growth.”
David Pyott, Allergan Chairman and CEO; Q4 2013 Earnings Call, Feb. 5, 2014:
81
“Well,
clearly,
we’ve
stated
over
the
years
that
gradually,
the
SG&A
rates
will
come
down
into
the
mid-30s.”
David Pyott, Allergan Chairman and CEO; Q4 2011 Earnings Call, Feb. 2, 2012:
SG&A Ratio
2010: 40%
2011: 40%
2013: 39%
Source: Company filings.
Allergan Management has Admitted that SG&A is
“Very High”
but has not Made Meaningful Progress
Solving the Problem |
 “I think this will be more a case of evolution versus revolution.”
David Pyott, Allergan Chairman and CEO; Response on Q3 2010 Earnings Call:
“And one more big-picture question, I guess, for David. You talked a
little bit about going to SG&A levels of sort of 35% over time, anything
structurally that you're planning for next year?”
David Buck, Buckingham; Question on Q3 2010 Earnings Call, November 1, 2010:
“You're quite right that we've had very high SG&A ratios relative
to the
rest of the industry…
So the good news is that we have a lot more room
for
maneuver
than
most
companies,
and
that
will
be
helpful
as
we
start
doing that form of scenario planning.”
David Pyott, Allergan Chairman and CEO; Q2 2013 Earnings Call, July 31, 2013:
Allergan Management has Admitted that SG&A is
“Very High”
but has not Made Meaningful Progress
Solving the Problem (Cont.)
82 |
 VII.
Allergan’s Poor Track Record of Allocating Capital
83 |
 Allergan has
a Poor Track Record of Allocating Capital
84
Flawed capital allocation framework
Questionable business development track record
Excess cash balances |
 “For David and for Jeff, what's your philosophy on having a net cash
position and whether you think that's ideal?”
“Can management better serve investors by maybe being more
aggressive with cash deployment and maybe even taking advantage
of some of these lower rates near term?”
Gregg
Gilbert,
BofA
Merrill
Lynch;
Q1
2012
Earnings
Call,
May
2,
2012:
Frank Pinkerton, SunTrust Robinson; Q1 2011 Earnings Call, May 4, 2011:
“My question is with respect to your capital allocation strategies.
Wondering if you could provide an update now especially given your
large cash balance and also your decision to potentially divest your
obesity franchise.”
Louise Chen, Guggenheim Securities; Q3 2012 Earnings Call, October 30, 2012:
85
Analysts have Repeatedly Questioned Allergan’s
Capital Allocation Strategy |
 “I was wondering though if you and the board are open to deals that create
economic value and add to franchise value even if they don't meet that [10%]
revenue growth threshold?”
Gregg Gilbert, Bank of America; Question on Q3 2013 Earnings Call, October 29,
2013: David Pyott, Allergan Chairman and CEO; Response on Q3 2013 Earnings
Call: Allergan’s interest in acquisitions seems to be motivated by
growth for growth’s sake rather than shareholder value creation
“…we would have no interest in buying, and I'll exaggerate, a product or
a company
that
were
only
growing
2%
or
3%,
because
all
we
do
would
be
diluting our already really strong internal performance.”
David Pyott, Allergan Chairman and CEO; Q4 2013 Earnings Call, February 5,
2014: 86
Flawed Capital Allocation Framework: M&A
“Then your question on profile of potential companies, clearly, we're looking
to franchises that have growth potential because Allergan is a growth
company.” |
 87
Capital return program is not designed to create shareholder value
Allergan’s buyback program aims only to offset the dilution from stock
based compensation –
Valuation is not a consideration
Did not buy back shares last year when the stock fell to the $80-$90 per
share range and stayed in that range for several months
“Well, maybe ending with the easiest part. On share repurchase, over a long
period of time, our goal has been to hold the share count roughly flat.
We'll go up and down at the margin quarter-to-quarter, so the
treasury is on the other side, if you like of the dilution caused by
employees appropriately exercising their stock options.”
David Pyott, Allergan Chairman and CEO; Q4 2013 Earnings Call, February 5,
2014: Flawed Capital Allocation
Framework: Share
Buybacks |
 “And I think you as investors would prefer that we find good-return
assets like that versus the very modest levels of return we can get by
investing in the capital markets where, obviously, right now, the
returns are very, very low indeed.”
David Pyott, Allergan Chairman and CEO; Q3 2012 Earnings Call, October 30,
2012: “We have sufficient liquidity on our balance sheet that enables us
to be proactive with respect to business development activities. Finding
smaller opportunities that are very focused, you've noted, I'm sure,
that we've been fairly active and aggressive in those areas. Finding
that larger opportunity is a bit tougher and we're very disciplined how
we go about it.”
Jeff Edwards, Allergan CFO; Q1 2011 Earnings Call, May 4, 2011:
88
Management has Highlighted M&A as a Primary
Use of Cash in the Past |
 Allergan has
Historically Not Been Able to Identify Attractive Acquisition Targets
89
“It would seem obvious to many of us that you should be hoping or
seeking to leverage your balance sheet more aggressively. But when
we talked to investors, some argue that there aren't actually many
assets available in your therapeutic categories or in aesthetic and
derm. So it's an issue that you'd like to be more aggressive, but can't
find the assets?”
Ken Cacciatore, Cowen & Company; Q3 2013 Earnings Call, October 29, 2013:
Between 2011 and 2013, Allergan generated $4.4bn of cash from
operations but invested only $1.3bn of cash in acquisitions
|
 Allergan’s Acquisition Track Record is
Questionable –
Inamed
90
In 2005, Allergan acquired Inamed Corporation for $3.3 billion
At the time of the acquisition, the obesity intervention business or LAP-
BAND franchise represented approximately 30% of total Inamed sales
Post-acquisition, LAP-BAND was shown to be less effective than
alternative therapies and insurers stopped covering it
In 2013, Allergan sold its obesity intervention business for $110
million and recorded a $408 million pre-tax loss on the sale
~80% of the net book value
(1)
of the business was written off
In addition, sales in Inamed’s largest division, Natrelle breast
aesthetics, profoundly disappointed with sales falling ~36% below
Wall Street analyst expectations by 2010
(2)
Allergan sold nearly a third of the largest business it ever acquired for
3.3% of the aggregate purchase price
Source: Company filings, press releases.
(1) Based on the book value as of 12/31/2012 related to the obesity intervention business unit.
(2) 2010 actual sales compared to analysts revenue consensus on the same year sales as of three months
after the acquisition in 2006. As the only major acquisition during David Pyott’s tenure,
Inamed is not an encouraging example of management’s M&A acumen
|
 Allergan’s Acquisition Track Record is
Questionable –
Sanctura Franchise
In September 2007, Allergan acquired Esprit Pharma, whose only major
product line was the Sanctura franchise, for $371 million in cash
Allergan management stated that they expected peak-year revenue from
Sanctura XR, a replacement for the original Sanctura formulation, of
between $300 million and $400 million
Generic manufacturers challenged Allergan’s patents on Sanctura XR in
2009, and filed applications to market generic equivalents
In the third quarter of 2010, Allergan recorded an impairment charge
related to the Sanctura franchise of $369.1 million, or 99.6% of the initial
purchase price
(1)
In April of 2012, a Delaware judge ruled in favor of the generic
manufacturers and declared Allergan’s Sanctura XR patents invalid
Three years after Allergan acquired Sanctura, the company recorded an
impairment charge equal to the entire $371 million purchase price
Source: Company filings, press releases.
(1) Allergan 2013 10-K.
91 |
 (1) Based on Allergan
management estimate of peak-year sales of $500 million. Allergan’s
Acquisition Track Record is Questionable –
MAP Pharmaceuticals (Levadex)
Forty-six days after Allergan spent $872 million to acquire Levadex, the
FDA rejected Allergan’s second request to market the drug
In January 2011, Allergan and MAP Pharmaceuticals (“MAP”) established a
50/50 partnership to develop Levadex
The FDA rejected the companies’
first request to market Levadex in March
2012, citing concerns about manufacturing of the product’s inhaler
On March 1
st
, 2013, Allergan acquired MAP for $872 million
On April 16
th
, 2013, the FDA rejected Allergan’s second request to market
Levadex, citing nearly identical concerns about the inhaler
In order to improve the quality of the inhaler device, Allergan spent an
additional $20 million to acquire Exemplar Pharma, maker of the inhaler
On
June
30
th
,
2014,
Allergan
reported
that
the
FDA
had
rejected
Levadex
a
third time
While Levadex is likely to be approved at some point, Allergan has lost at least
three
years
of
peak-year
market
exclusivity,
an
estimated
$1.5bn
of
sales
,
and
has allowed a competing product to enter their product launch window
92
(1) |
 Allergan’s Acquisition Track Record is
Questionable –
MAP Pharmaceuticals (Levadex)
93
“And then David and Scott, I assume that Allergan is very confident in the
provability of the product on taxpayers sooner but can you talk maybe more
broadly how you --
or specifically, how you protected shareholders of Allergan in
the event of an undesired FDA outcome?”
David Pyott, Allergan Chairman and CEO; Response on January 23, 2013 M&A
Call: “I think on my side, if I look at the risk of delay beyond the
PDUFA date, this is just normal with any program that exists whether it's
our internal program or an external. And of course, in this instance, we
have been the partner of MAP from the very beginning. So our team and their
team has worked hand in glove. So we're very well informed.”
Gregg Gilbert, BofA Merrill Lynch; Question on January 23, 2013 M&A Call:
Allergan management took an inappropriate risk by buying MAP weeks
before the Levadex FDA decision, despite working closely with MAP for
years on the Levadex project
Analysts were appropriately concerned about an adverse FDA outcome:
|
 94
The largest acquisitions of Pyott’s tenure have all disappointed
Allergan’s Largest Acquisitions, Using
~$5 Billion of Capital, Have All Disappointed
Semprana (Levadex)
3/23/06
99.6% of purchase price written
off as impairment charge
80% of net book value written off
Three FDA CRLs and resulting
multi-year delay has significantly
impaired the value of the asset
Sales have fallen >30% short of
expectations at the time of the
acquisition
$3.3Bn
*
$371M
$3.3Bn
*
$872M
10/16/07
3/1/13
3/23/06
Date
Tx value
*Lap-Band and Natrelle were acquired as part of the Inamed acquisition
|
 VIII.
Allergan’s Shareholder Unfriendly Compensation Policies
95 |
 Allergan’s Poorly Designed Executive
Compensation Program
Based on ISS executive compensation analysis, only 13% of David
Pyott’s total compensation in 2013 was tied to performance
ISS recently cautioned that the CEO’s level of long-term incentive
compensation was high relative to peers and was not conditioned on
specific performance goals
By contrast, 68% of Valeant CEO Michael Pearson’s total compensation
in 2013 was performance-based incentive pay
In 2013, David Pyott received total compensation of $14.1 million while
delivering 1-year TSR of 21.3%, in a year in which the S&P 500 TSR
was 32.4%
The median total compensation received by CEO’s in Allergan’s proxy
peer group was $14.5 million while delivering 1-year TSR of 65.8%
By contrast, Michael Pearson received total compensation of $7.0
million while delivering 1-year TSR of 96.4%, nearly three times the TSR
of the S&P 500
Source: 2014 ISS reports of Allergan and its peer group as defined by the company
in its proxy statement dated March 26, 2014. 96 |
 97
Inadequate TSR Trigger (on one-time grants)
In 2012, CEO Pyott was granted 165,000 restricted stock units to
“recognize over a decade of outstanding performance”
To achieve maximum
vesting, total shareholder return must be 9% over
a five year period
9% is below the 10% minimum
TSR Valeant must achieve for any of
management’s restricted stock to vest
Time-Vested Stock Options
Time-vested options comprise nearly all of senior management’s
long- term equity compensation
The options have no performance trigger
The options are issued at the money, making them valuable even if
Allergan’s share price growth is meager over the life of the option
Allergan’s Poorly Designed Executive
Compensation Program (Cont.) |
 Allergan
Management was Granted Options only Months before Revised Guidance was
Announced Management’s 2014 options grant was struck at an Allergan
share price of $124 in February 2014, three months before
management chose to announce its revised guidance
98
This implies one of the following:
Management was under-reporting the profit potential of the
business at the time of the options grant, or
Management’s current estimate of Allergan’s long-term earnings
is unrealistically high
In February, David Pyott was granted 257,756 options worth a
Black-Scholes
value
of
$13
million
1
These options are worth $22 million at Allergan’s current $167
share price
1
(1) Option values calculated using a volatility of 27.5%.
|
 Notably, management has not tied long-term compensation
to the new long-term financial plan
99
Annual Cash Incentive Compensation
Up to 200% of base salary possible if
goals are achieved
Long-Term Incentive Compensation
50% time-vested stock options
50% performance share units;
three-year annualized Total
Shareholder Return (TSR) vesting
Annualized
TSR (IRR)
% of
PSUs
vesting
Michael Pearson &
Howard Schiller
Valeant is “all in”
on aligning compensation with
performance –
we challenge Allergan to do the same
Allergan Has Revised Its Long-Term Plan But Not Its
Compensation Policy
<10%
0%
10%
100%
20%
200%
30%
300%
Source: Valeant 2014 proxy statement.
Valeant
Management
Compensation
Structure
: |
 100
IX. We Believe There is Significant
Downside to Allergan’s Standalone
Stock Price |
 Allergan’s
unaffected
share
price
is
$116.63,
the
closing
price
on
April
10
th
,
the day before Pershing Square began its rapid accumulation program
Allergan
share
price
and
volume
from
2/25/2014
to
7/14/2014
30% Downside to AGN Shares if they Revert to
the Unaffected Share Price
Note: Chart shows Allergan’s share price, volume, and the number of shares, delta-one
options, and forwards purchased by Pershing Square from February 25, 2014, the day Pershing
Square began its purchases, to July 14, 2014. Share price and volume data are as per Capital IQ.
30% downside
to unaffected
share price of
$116.63
Apr. 9-10:
No
Pershing
purchases
101
Date Range
ADTV
1/1/2014 -
4/10/2014
4/11/2014 -
4/21/2014
4/22/2014 -
7/14/2014
2.6mm
6.8mm
4.1mm |
 High
Trading Volume Since Initial Valeant Bid 102
Since Valeant’s initial bid, trading in AGN shares has exceeded
88% of the company’s float
April 22: Initial
VRX proposal
May 28: Second
VRX proposal
May 30: Third
VRX proposal
Source: Bloomberg, company filings.
Note:
%
of
float
traded
excludes
shares
owned
by
Pershing
Square
and
Valeant. |
 103
88%
(1)
of Allergan’s float has changed hands since the initial
VRX bid, likely indicating that many long-term AGN investors
have sold shares
We believe selling shareholders recognize that the standalone
value of Allergan is below the current AGN share price
We believe selling shareholders also recognize that value-
destructive actions taken by Allergan management to scuttle the
Valeant deal remain a risk
Recent buyers of Allergan shares likely support the transaction
Recent buyers have paid >$160 per share
We believe these buyers likely support the Valeant transaction
and believe in the value creation of the business combination
We believe that recent sellers of AGN shares include long-term
investors who fear that Allergan’s board and management will
not act to maximize shareholder value
(1) % of float traded excludes shares owned by Pershing Square and Valeant.
Long-Term Investors See Risk |
 $172.50
(1)
Look-Through Price
104
Source:
FactSet.
(1)
As of July 14, 2014.
Includes 252k shares sold
by David Pyott
at $123.12
per share (not
10b5-1), for
total proceeds of $31mm
43%
premium
$76mm
$12mm
$27mm
$53mm
$56mm
$65mm
$21mm
$15mm
$76mm
$12mm
$223 Fair Value
84%
premium
Allergan Insiders have Sold a Significant Number of
Shares at Prices Much Lower than the Current Offer
Allergan Insider Annual Open Market Sales
1,054K Shares
338K Shares
622K Shares
156K Shares
623K Shares
176K Shares
628K Shares
689K Shares
192K Shares
108K Shares
$72
$83
$92
$103
$121
2010
2011
2012
2013
Q1 2014
Non-10b5
-1 Shares Sold (000's)
10b5
-1 Shares Sold (000's)
Weighted Average Sale Price |
 $138.0
$49.7
$75.8
$81.3
$192.9
$62.8
$70.8
$19.8
$298.1
$70.5
$170.0
$27.1
$87.2
$90.1
$31.6
$40.6
105
Source:
FactSet, 2013 –
Q1 2014.
Note:
Market cap based on basic shares outstanding.
(1)
Market
cap
as
of
July
14,
2014.
FRX
shown
as
of
closing
price
of
$99.00
on
June
30,
2014,
the
final
day
of
trading
prior
to
the
acquisition
by
Actavis
Plc.
23.4x
549,600 shares
WAP: $115.29 per share
Peer Median
Market Cap
($Bn)
(1)
VRX management
exhibiting confidence in
business model
Allergan executives clearly had a far less bullish view of their
stock prior to the Valeant offer
$234mm
Allergan CEO/CFO Sales Compared to Peers
Since January 2013
$63mm
$50mm
$19mm
$16mm
$12mm
$8mm
$5mm
$3mm
$2mm
$2mm
$1mm
$0mm
$0mm
$0mm
$0mm
GILD
AGN
BIIB
BMY
PFE
ABT
CELG
STJ
JNJ
LLY
MRK
FRX
ABBV
AMGN
SYK
VRX |
 Allergan’s Revised Long-Term Financial Plan
On
May
12
th
,
in
reaction
to
Valeant’s
April
22
nd
bid,
Allergan management announced a new revised long-
term plan
106
We question the credibility and value creation
potential of this long-term plan |
 Higher
Guidance Appears Driven by the Valeant Bid, not a Fundamental Change in the
Business 107
“And [on] many occasions, I've talked about our midterm growth
aspirations being around about 10% sales growth…”
David Pyott, Allergan Chairman and CEO; Q2 2013 Earnings Call, July 31, 2013:
“Beyond 2015, we believe we'll grow revenue at the double digits…”
David Pyott, Allergan Chairman and CEO; May 12, 2014 Special Call (After Valeant’s Proposal):
Management Revenue Guidance has not Materially Changed
Source:
Bloomberg Consensus.
Note:
Prior
to
new
plan
estimates
from
May
9 ,
2014
for
2014E-2015E
and
May
8 ,
2014
for
2016E-2017E.
Current
estimates
as
of
July
14 ,
2014.
$7.0Bn
$7.6Bn
$8.1Bn
$8.8Bn
$7.0Bn
$7.6Bn
$8.3Bn
$9.2Bn
0.5%
1.1%
2.5%
4.7%
2014E
2015E
2016E
2017E
Prior to New Plan
Current
th
th
th
Allergan Consensus Revenue Estimates, Before and After Revised Plan ($Bn, 2014E –2017E)
|
 108
“Going
back
to
SG&A
leverage,
we've
always
stated
that
our
target
in
the midterm is the mid-30s, so I’d reiterate that.”
David Pyott, Allergan Chairman and CEO; Q4 2013 Earnings Call, February 5,
2014: “Now we're really cranking this in terms of [SG&A] leverage.
And by the
end
of
this
period,
it
will
get
to
the
mid-
to
the
high-20s.”
David Pyott, Allergan Chairman and CEO; May 12, 2014 Special Call (After
Valeant’s Proposal): Source of Improved SG&A Ratio Unclear Given
Modest Increase in Revenue Growth And No Announced Major Cost Cuts
Higher Guidance Appears Driven by the Valeant Bid,
not a Fundamental Change in the Business (Cont.) |
 “Regarding
the
full
year
2014,
Allergan
estimates…
growth
of
between 12% and 15%, which is consistent with our aspiration of mid-
teens EPS growth.”
Jeff Edwards, Allergan CFO; Q4 2013 Earnings Call, February 5, 2014:
“…[we believe] we can achieve EPS growth of 20% on a compound
annual basis over the next five years.”
David Pyott, Allergan Chairman and CEO; May 12, 2014 Special Call (After
Valeant’s Proposal): What, besides the Valeant proposal, changed in the
three months between Allergan’s February
5
,
2014
Q4
earnings
conference
call
and
the
May
12
Special
Call?
109
If Allergan were being conservative about the fundamentals of the
business before the Valeant proposal, why then were insiders,
including Pyott, selling shares in Q1 2014?
Higher Guidance Appears Driven by the Valeant Bid,
not a Fundamental Change in the Business (Cont.)
th
th |
 Why is
this the goal “now”? How does raising guidance increase shareholder
value? “Our
goal
now
is
to
give
them
most
of
what
they
want…We
will
raise earnings guidance further.”
David
Pyott,
Allergan
Chairman
and
CEO;
June
23
rd
,
2014
-
Pyott as quoted by Reuters at the BIO International Convention; emphasis added
110
Higher Guidance Appears Driven by the Valeant Bid,
not a Fundamental Change in the Business (Cont.) |
 Certain
analysts
have
increased
their
near-term
price
targets
by
up
to
67%
based
on
a
24%
increase
in
EPS
five
years
from
now
111
Management’s increased guidance from a 15% EPS CAGR to a
20% EPS CAGR implies a 24% increase in 2019 EPS
+44%
+57%
+67%
+44%
+47%
Source:
Allergan June 10, 2014 investor presentation.
(1)
Represents midpoint of price target range.
The Revised Plan Does Not Support Certain
Standalone Analyst Price Target Increases…
(1)
(1)
$140
$115
$124
$135
$124
$202
$180
$207
$195
$183
$0
$50
$100
$150
$200
$250
BMO
BTIG
Buckingham
Guggenheim
Leerink Swann
Old Price Target
New Price Target |
 112
…Other Analysts Question Management’s Views on the
Standalone Value of Allergan
“Allergan asserts that its current 26.8x P/E multiple is ‘Due to
Accelerated EPS Outlook from Mid-teens to Revised Guidance of
20% Five-Year EPS CAGR,’
essentially saying that there is no take-
out premium in AGN stock related to the VRX offer. Given the stock’s
reaction following Valeant’s offers, we believe most investors would
disagree.”
Alex Arfaei, BMO; “Will Likely Go the Distance With AGN; But Should Gain More
Support”, June 10, 2014:
|
 113
Thoughts on Allergan’s Valuation Multiple
Some analysts have taken Allergan’s revised guidance and
applied
AGN’s
historical
average
P/E
multiple
of
22x
(1)
to
arrive
at a target price. We believe this analysis is materially flawed
We believe AGN’s historic multiple priced in several
opportunities that will disappear under the revised guidance:
Opportunity
for
substantial
SG&A
and
R&D
savings,
starting
from
SG&A
ratio
that
is
over
1,200
bps
higher
than
the
peer
average
(2)
,
which are already captured in AGN’s revised guidance
Potential
to
reduce
AGN’s
relatively
high
tax
rate,
which
disappears without a tax inversion or sale to a foreign company
Premium
for
potential
take-out,
which
decreases
substantially
under a “go-it-alone”
approach, since few acquirers are willing to
engage in hostile transactions
(1)
Ten-year historical average twelve-month forward P/E multiple as per
Bloomberg. (2)
See page 79 for comparison of Allergan’s SG&A as a % of sales to peer
companies. |
 114
Allergan’s history of poor cost management and
poorly designed management incentives should make
investors question the credibility of the revised or any
re-revised long-term plan |
 115
The Expected, Re-Revised Allergan Operating Plan
Allergan’s management has indicated they will re-revise their
long-term guidance at the time of their Q2 earnings
announcement
The re-revised plan is reactive both to the Valeant proposal and
to shareholder’s disappointment with the initial revised plan
presented in May
The new plan is not credible given management’s previous
statements and actions in addressing the considerable cost
opportunity at Allergan
Any new plan further validates Valeant’s assertion that Allergan
has significant waste in its SG&A and R&D spending
Allergan’s history of poor cost management indicate a lack of
appropriate management oversight by the Allergan board
|
 116
“We
listened
carefully
to
investors’
perspectives
and
heard
that
they
would like to see us harnessing this financial strength to create even
more stockholder value by, among other suggestions, either
purchasing growth-oriented companies or technologies that fit our
strategy and operating model, and/or buying back Allergan stock.”
“As you know, historically we produced strong free cash flow as well
and we've managed to deploy a lion’s share of that free cash flow.
The number one priority is always business development, so M&A. By
all means we will continue looking aggressively for opportunities
across the therapeutic areas we presently do business, but also
looking for adjacencies or other specialty areas that could provide
significant value.”
David Pyott, Allergan CEO, 8-K filed May 19, 2014:
Jeff Edwards, Allergan CFO, Conference call, May 12, 2014:
Management is Considering Making Acquisitions
of its Own to Thwart an Attractive Bid |
 117
Why is Now the Right Time to Make a Large
Acquisition?
We are extremely skeptical that Allergan shareholders would
be better off paying a premium for another company than
receiving a 50%+ premium in a highly strategic merger
Given Allergan’s poor M&A history, we expect shareholders
will discount the value-creation potential of any acquisition
Unlike Valeant, Allergan has no experience integrating a large
acquisition
Shareholders will likely be especially leery of acquisitions of
pipeline assets, which are speculative in nature and have been
particularly value-destructive for Allergan in the past
Any
“value-creating”
acquisitions
would
have
most
likely
been
available for years before the Valeant bid |
 118
Source:
Reuters.
“Pyott has met with investors to talk about the company’s defense,
which
he
said
could
include
issuing
new
debt
to
buy
back
shares.
He
said Allergan could borrow up to $10 billion without affecting its
investment-grade rating, but he did not say how much the company
might spend on the buybacks.”
Caroline Humer and Deena Beasly of Reuters, July 1, 2014:
Management is Also Considering a Leveraged
Buyback |
 119
Allergan has indicated that the company is contemplating a
leveraged
buyback
of
up
to
$10
billion
,
compared
to
a
total
buyback of $2.4 billion from 2011 to Q1 2014
Allergan’s stock is currently trading at 29x 2014E earnings per
share,
vs.
18x
for
its
peers
(2)
Represents 24% premium over 12-month median price target of
$135 per share before initial Valeant bid
82% premium over the three-year average price of $92 per
share
A leveraged buyback of this scale will likely have to be
conducted at a material premium to AGN’s current price
A Large Buyback at the Currently Elevated Share
Price would be Value-Destructive
Source:
Interview with David Pyott (Reuters, July 1), Company filings and FactSet.
(1)
Represents Allergan’s maximum borrowing capacity while retaining investment-grade
rating. (2)
As of July 14, 2014. Peers from Allergan’s 2014 proxy (excluding Forest Laboratories).
(1) |
 120
Source: Company filings and Factset.
Allergan Share Buyback –
Too Little, Too Late
Why didn’t Allergan buy back stock at $80-90 per share last year?
2011
2012
2013
2014
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
3 year average price: $91.80
July 14 closing
price: $167.02
Amount repurchased
Stock price
82%
premium
$0.00
$20.00
$40.00
$60.00
$80.00
$100.00
$120.00
$140.00
$160.00
$180.00
$200.00
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
$163
$136
$75
$88
$217
$332
$174
$185
$648
$0.7
$0.2
$1.4
$398
th |
 121
“Pyott said other drugmakers at the San Diego convention
‘understand that if we were to succumb to this, then somebody even
bigger is next on the menu, or at least a lot of them will be afternoon
snacks.’”
Is David Pyott more concerned about protecting shareholder
interests or preserving the privileges of fellow entrenched
pharmaceutical managements?
Deena Beasley of Reuters paraphrasing David Pyott at the BIO International
Convention, June 23, 2014: |
 122
Q&A
We encourage shareholders considering supporting the
Pershing Square special meeting consent solicitation to
contact D.F. King, our proxy solicitor, with any questions
about the process:
Ed McCarthy
D.F. King
(212) 269-5550
emccarthy@dfking.com |