TheChek News Flow

Allergan takeover saga ended with deal of the year

Boxes of Allergan Inc. Botox cosmetic are arranged for a photograph at a doctor's office in Manhattan Beach, California, U.S., on Tuesday, April 22, 2014. Valeant Pharmaceuticals International Inc. offered to buy Allergan Inc., maker of the Botox wrinkle treatment, in a cash-and-stock deal valued at $45.7 billion in the latest step of the Canadian company’s plan to become one of the world’s largest drugmakers. Photographer: Patrick T. Fallon/Bloomberg©Bloomberg

For the past three decades the great and the good of the pharmaceuticals industry have descended on San Francisco for a week in January. They ostensibly come for JPMorgan’s annual healthcare conference at the historic St Francis hotel, but everyone in the sector knows that the real action takes place in the cocktail bars and restaurants that are dotted around Union Square.

It was here, almost exactly a year ago, that two men met to hatch a plan that would morph into the biggest and most acrimonious takeover battle of 2014. The following account of that battle is based on interviews with people familiar with the matter, as well as court documents and filings.

One of the men was Bill Doyle, a former Johnson & Johnson executive who had recently started working for his old classmate, the billionaire hedge fund manager Bill Ackman. The other was Michael Pearson, chief executive of Valeant Pharmaceuticals, who Mr Doyle knew from their days as management consultants at McKinsey. The pair discussed the merits of forming a novel dealmaking partnership between Mr Ackman’s hedge fund and Valeant.

Under Mr Pearson’s leadership Valeant had become a mergers and acquisitions juggernaut with a voracious appetite for debt-fuelled deals. After buying a company, Mr Pearson extracted higher profits by taking an axe to costs, a strategy that had served his investors well.

Mr Pearson thought teaming up with Mr Ackman, one of the most feared activist investors on Wall Street, could help Valeant snare a company he had been interested in for several years: Allergan, the maker of blockbuster wrinkle treatment Botox.

The San Francisco meeting went so well that Mr Pearson and Mr Ackman met three weeks later and discussed a bid. After that, things moved quickly: the pair agreed on the terms of an alliance and signed a confidentiality agreement. Pershing Square, Mr Ackman’s hedge fund, would quietly amass a large stake in Allergan and then Valeant would pounce. Together they would exert enough pressure to win over other investors.

Around the same time, Mr Pearson invited David Pyott, Allergan’s chief executive, to dinner, but the pair never met. Mr Pearson cancelled after Mr Pyott let it be known through a number of industry analysts that he had no interest in pursuing a transaction with Valeant.

The Big Read: Permanent capital

William "Bill" Ackman, chief executive officer of Pershing Square Capital Group LLC and Canadian Pacific Railway Ltd. board member, attends the Canadian Pacific Railway annual shareholders meeting in Toronto, Ontario, Canada, on Wednesday, May 1, 2013. Ackman resigned from J.C. Penney Co.’s board on Aug. 13, 2013, ending his public fight to push Chief Executive Officer Mike Ullman out after the CEO got support from investors including Soros Fund Management LLC. Photographer: Norm Betts/Bloomberg *** Local Caption *** Bill Ackman

Private equity and hedge funds seek new holy grail: a never-ending supply of money to invest

Continue reading

It is hard to overstate the disdain Mr Pyott felt towards Valeant and its chief executive. He thought the company’s strategy of slashing spending on research and development would destroy shareholder value, and his legacy at Allergan.

Mr Pyott joined the company in 1998 and transformed it from a niche maker of eyecare products into one of the most admired companies in the industry. Born in England to Scottish parents, his accent has developed a hint of transatlantic drawl, but his soft-spoken, polite style can seem at odds with the cut and thrust of the US boardroom.

During March and April, Mr Ackman amassed a stake of almost 10 per cent in Allergan. Then, on April 22, Valeant and Pershing Square went public, announcing their $47.5bn hostile takeover offer at a press conference that lasted almost four hours.

The seven-month takeover battle that followed was brutal. Mr Pearson and Mr Ackman launched a bitter proxy war to eject Allergan’s directors and replace them with a board more amenable to a takeover.

Allergan responded by attacking Valeant’s business model and trying to block the attempt to unseat its directors in the courts. In the middle of June, the Botox-maker went so far as to publish a cache of private emails from Morgan Stanley. The investment bank had tried, and failed, to win a place on Allergan’s advisory team, but ended up working for the other side.

Before Morgan Stanley switched teams it sent a series of emails to Allergan that were highly critical of Valeant. In one, Rob Kindler, the banker leading Valeant’s pursuit, was quoted as describing the company’s business model as a “house of cards”.

Meanwhile, Allergan came close to buying Salix, a gastrointestinal drugmaker that was worth about $10bn, in September. The deal could have made Allergan too large for Valeant to swallow, but it called talks off at the eleventh hour after uncovering an accounting scandal that would claim Salix’s finance chief.

Valeant raised its offer twice and twice it was rejected. On a Sunday in early October, Mr Ackman and Mr Pearson met at Teterboro airport in New Jersey, a favourite for executives flying their private jets in and out of New York. They discussed raising the offer for a third time. Mr Ackman was keen, but his partner wanted to wait.

However, the following Tuesday, the news they were considering sweetening their bid leaked, much to the chagrin of Mr Pearson and his bankers. Two weeks later, the Financial Times asked Mr Pearson if he and Mr Ackman had fallen out over strategy. “Do we always agree on every tactic? No,” he replied.

Despite growing tensions in the Valeant camp, a deal appeared to be within reach. If Valeant could secure a majority of shareholder votes at a special meeting in December, it would be able to eject Allergan’s directors and push for a transaction.

The maths did not look good for Allergan. Some of its biggest investors wanted to sell to Valeant, as did a number of hedge funds that had bought shares in anticipation of a deal. Its only real hope was that a Californian judge would prevent Mr Ackman from voting his 10 per cent stake.

It was around this time that Allergan adopted, in the words of one of its advisers, an “anyone but Valeant” strategy. Back in August, Actavis, an Ireland-based drugmaker that was growing at a blistering pace, had signalled its interest in buying the company. Mr Pyott was friendly with its recently installed chief executive Brent Saunders — the pair had dined together over the years — but the discussions never really took off. At the end of October, the talks resumed with a fresh sense of urgency.

On November 4, came the moment that everyone had been waiting for: the Californian court ruled that Mr Ackman could vote his stake at the December meeting. Allergan would almost certainly lose and be forced into the arms of Valeant.

The following day Allergan signed a confidentiality agreement with Actavis and the pair began rushing to complete a deal. Its days as an independent company were over. Mr Pyott and Mr Saunders agreed that they had to do the deal at a price that would make it impossible for Valeant to come back with a counter-offer.

Even so, the $219-a-share agreed deal, which valued the company at $66bn, stunned observers when it was announced on November 17. The highest bid Valeant had made was $179 a share. It took less than an hour for Mr Pearson to rule himself out of the race.

In the words of one of his advisers, it was a “bittersweet” moment for Mr Pyott, who stands to make hundreds of millions of dollars from his share options when the deal is completed. As for Mr Ackman and Mr Pearson, neither will say whether they have any plans to work together in the future.

Allergan, Valeant, Actavis and Pershing Square declined to comment.

Alisarda (formerly Meridiana), the Italian airline owned by the Aga Khan, has attracted the interest of sovereign wealth fund the Qatar Investment Authority , Italian-language daily La Stampa reported. The unsourced report said that the QIA is interested in taking a 20% stake in the airline.

The report cited an Alisarda spokesperson as noting that it had not yet received any manifestation of interest from the QIA.

La Stampa

Economists sceptical ECB bond-buying would revive eurozone

Any effort by the European Central Bank to launch a massive quantitative easing programme this year would fail to revive the eurozone economy, according to economists polled in a Financial Times survey.

The FT survey of 32 eurozone economists, mainly working in the financial sector, conducted in mid-December, found most expected the ECB to launch QE in 2015 — catching up with the world’s other main central banks that have all bought large quantities of sovereign debt since the last financial crisis.

Twenty-six economists forecast the central bank would start purchasing government bonds this year, while five thought it would not. One did not respond to the question.

A stuttering recovery and a worrying drop in inflation have raised fears of another financial crisis in the currency bloc and put pressure on policy makers to cast aside powerful opposition from Germany and begin purchasing sovereign debt.

ECB president Mario Draghi last week gave his strongest signal yet that the central bank would extend its asset purchases to include sovereign debt in the next few months. A decision could come as early as the next governing council meeting on January 22.

But most of the FT poll’s respondents expected growth and inflation to remain weak even with quantitative easing. “[QE] will help lift inflation expectations and reduce the euro, but [it’s] not a total game changer,” said Dario Perkins, economist at Lombard Street Research.

Jörg Krämer of Commerzbank said QE would lower the yield on government bonds and “help the finance ministries of highly indebted countries such as Italy, and its banks”. But he added that QE would not change low growth and inflation levels and would “only fuel asset prices”.

While several respondents said government bond-buying was likely to help fight the threat of deflation and lower yields on debt issued by weaker sovereigns, most economists agreed that growth would remain lacklustre unless governments backed the ECB’s efforts.

“QE is not a panacea for the euro-area,” said Carsten Brzeski of ING DiBa, a bank. He suggested that the biggest impact from any QE would come “if governments were at the same time allowed to start a deficit-financed investment programme. [It’s] doubtful [that] will ever happen in the euro area.”

Some said a larger package stood more chance of success. “If it is big enough, it will have some effect on the economy, if only to bring the euro down,” said Jonathan Loynes of research group Capital Economics. “It’s worth a try.”

Of the economists who put a number on the size of the purchases, the most popular guess was €500bn, although some put the figure as high as €1tn and others as low as €250bn. Some also expected the ECB to start buying corporate debt alongside sovereign bonds.

Eurozone inflation dropped to 0.3 per cent in November, less than a fifth of the ECB’s target of just below 2 per cent. Inflation is likely to have fallen again in December on the back of the sharp drop in oil prices.

Mr Draghi and most of the governing council backed a new development in ECB policy in December, saying the expansion of the central bank’s balance sheet from €2tn towards the €3tn mark was now expected.

However, six policy makers objected to the December decision, underlining the extent of divisions over quantitative easing. Jens Weidmann, the Bundesbank’s president, was among the dissenters, and while Berlin is not expected publicly to oppose the policy, resistance within Germany remains fierce.

Many economists think it is impossible for the ECB to hit the €3tn level by confining its purchases to the assets it buys at the moment: covered bonds and asset-backed securities. “The ECB will purchase sovereign debt in 2015, mostly for want of anything else to buy,” said Lorcan Roche Kelly of Agenda Research.

Economists back Mario Draghi’s call for eurozone action

The European Central Bank in Frankfurt

Economists have backed president Mario Draghi’s calls for politicians to do more to support the European Central Bank’s efforts to rescue the eurozone from stagnation, but they remain sceptical that lawmakers in Berlin will listen. In a Financial Times poll of eurozone economists conducted in mid-December, a majority of respondents also viewed the EU’s tough budget rules as not fit for purpose.

Continue reading

Twenty-six respondents to the FT’s poll thought the size of the ECB’s balance sheet would lie somewhere between €2tn and €3tn by the end of 2015. Two thought the ECB would be able to hit €3tn over the next 12 months, while four thought the balance sheet would fall below €2tn.

Some respondents thought resistance within the council could affect the programme, with others suggesting the ECB would ensure national central banks bore the risk from buying their governments’ bonds.

“The ECB will most probably have to limit sovereign purchases to investment grade sovereigns,” said Hetal Mehta of Legal & General Investment Management, an insurer.

“The purchases will consist of nationally-weighted sovereign [debt purchases]. I think that [credit] risk will probably [be] decentralised at the national level via some mechanism,” said Lucrezia Reichlin, a professor at London Business School and co-founder of data firm NowCasting.

Richard Barwell of Royal Bank of Scotland said: “There may be compromises in the design to get as many people on board as possible, but I expect a sufficiently strong signal that the ECB is determined to do what it takes to preserve price stability and that’s what counts in the end.”

Kit Juckes of Société Générale said buying European Investment Bank bonds to spur investment spending was a “more appealing” way for the ECB to spend its cash.

Harald Benink, a professor at Tilburg University, agreed. “Our proposal of buying bonds . . . issued by the EIB is likely to be more acceptable to the Bundesbank since it is violating to a lesser extent monetary financing rules as contained in the [EU] Treaty”, he said.

Big pharma waits decision on cancer drugs

A scientist prepares protein samples for analysis in a lab at the Institute of Cancer Research in Sutton©Reuters

Tensions are rising between pharmaceutical companies and the UK government, as the industry braces for a decision on which drugs will be axed from a special fund for expensive cancer therapies.

NHS England is due to announce the results of a review of the cost-effectiveness of more than 40 medicines currently paid for by the Cancer Drugs Fund.

The expected decision to cut the number of cancer treatments available to NHS patients in England will intensify debate over access to medicines, as the government battles to close a forecast £30bn health funding gap by 2020-21.

Pharmaceutical companies say patients risk being denied the latest treatment because of financial pressure while critics accuse the industry of overcharging for medicines that offer only marginal benefits over existing products.

These arguments have come to the fore in the increasingly rancorous dispute over the Cancer Drugs Fund, which was set up in 2010 to provide extra funding for medicines deemed too expensive under the usual formula for judging value for money in the NHS.

Many medical professionals and academics object to the fund because it provides special treatment for cancer patients only and because it overrides the recommendations of the National Institute for Health and Care Excellence (Nice), the body that assess the cost-effectiveness of drugs.

This view appears to have been gaining ground in government as the growing cost of the fund has focused ministers’ minds on the budgetary implications of a policy that has been described as a “blank cheque” for cancer drugs.

In August, NHS England announced a 40 per cent increase in the fund’s annual budget to £280m and the government has since admitted it is already on course to “exceed” this increased figure in 2014-15.

In an attempt to bring costs under control, advisers to NHS England met last month to re-evaluate which drugs should be covered, with those demonstrating the weakest cost-effectiveness at risk of exclusion.

NHS England says the changes will put the fund “on a much firmer footing . . . as it faces increasing demand and growing financial pressure” while “encouraging pricing that delivers value for money for patients and the public”.

The Association of the British Pharmaceutical Industry has warned that the measures “threaten to take the UK back to a time of clear rationing of cancer medicines”.

However, big pharma is far from unanimous in its support for the fund, which disproportionately favours companies such as Roche, Johnson & Johnson and Novartis which are strong in cancer drugs.

Stephen Whitehead, chief executive of the ABPI, said the best outcome would be a reformed Nice with more flexibility to recommend expensive cancer medicines.

Nice judges medicines based on their cost per “quality-adjusted life year” (QALY) — a formula designed to measure the price of a drug versus the health benefit it delivers. The institute has generally considered £30,000-per-QALY as its upper threshold for cost-effectiveness.

This is far below the price of some of the most advanced cancer drugs.

One high-profile example is Roche’s Kadcyla breast cancer medicine, which was shown in clinical trials to extend life by an average six months compared with existing treatments, at a list price of £90,000 per patient.

The drug was rejected by Nice last August but is available through the Cancer Drugs Fund.

Critics say the ability for companies to sell their cancer medicines through the fund in spite of rejection by Nice meant there was no pressure to cut prices until the recent overhaul. Kadcyla is among the 40 products under review by NHS England.

The Cancer Drugs Fund is due to expire in 2016 but Labour last month said it would set up its own version if it wins the general election in May — demonstrating the public pressure on all parties to fund treatment for cancer.

President Hassan Rouhani has threatened to hold an unprecedented referendum in Iran as he warned hardline opponents of a nuclear deal with the west that the country must end its international isolation.

The Iranian leader said he was looking at the possibility of using his constitutional rights to give power to the people in comments that some analysts took as a warning that he may try to put any nuclear agreement to a public vote.

“Our political experience shows that the country cannot have sustainable growth when it is isolated,” he told a conference on Iran’s economy in Tehran on Sunday. He added that this did not mean Iran’s negotiations with six world powers — the US, UK, France, China, Russia and Germany — were compromising the Islamic regime’s ideals of the 1979 revolution.

“Our ideals are not bound to centrifuges. Our ideals are bound to our hearts, brains and determination,” he said.

Mr Rouhani is under pressure from Iran’s hardliners in the parliament and the elite Revolutionary Guards, who insist that nuclear negotiations, which have been extended until July 1, should only be secured if all sanctions are lifted. Many Iranian analysts say the condition sounds almost impossible to achieve, fuelling concerns in Tehran that a deal is out of reach.

While Mr Rouhani called for unity at home, he said he could resort to holding a referendum over “important matters which are important for all people and have impacts on their lives” if his policies were blocked.

“Even if Rouhani has no plan to use this right, he basically threatened that he may ask public opinion about a nuclear deal,” said a reform-minded political analyst. “This can scare his rivals not to insist on impossible things like immediate lifting of sanctions.”

Iran denied an AP story over the weekend suggesting that Tehran and Washington had agreed to ship nuclear material to Russia to guarantee that it could not be used for weapons.

Iran’s economy is suffering from both the impact of international sanctions over the nuclear programme as well as the falling oil price.

Tehran, which had initially blamed its main rival Saudi Arabia for embarking on an oil war to undermine the Islamic Republic, said it now recognised that there were other market forces at play.

Bijan Namdar Zanganeh, Iran’s oil minister, said on the sidelines of the conference on Sunday that excessive supply in the market was partly related to the rise in production of shale oil. He said Iran would strive to protect its market share, even though oil sales had almost halved over the past three years because of sanctions. “I will not lose market share under any conditions . . . and will increase production, regardless of prices, when [oil] sanctions are lifted,” he said.

Economists at the conference gave a bleak picture of the country’s economy despite government achievements since Mr Rouhani took office in the summer of 2013. Inflation has fallen from around 40 per cent at that time to around 17 per cent while economic growth, which had contracted for two successive years, increased about 4 per cent from April to October last year.

Mr Rouhani also called for an end to corruption in the economy — a clear reference to the Guards and their massive business interests. “The economy cannot move ahead with monopolies. We have to rescue the economy from monopolies and ill-gotten advantages.”

Angela Merkel will not hold at all costs in the euro zone Greece. Former EU Monetary Affairs Commissioner Olli Rehn, however, expected after MIRROR information further concessions from the EU partners towards Athens.

Hamburg - Olli Rehn sees a possible election victory of the radical left SYRIZA -party in Greece with equanimity. "It seems to me exaggerated that some paint the devil on the wall," said the former EU Monetary Affairs Commissioner SPIEGEL. "Any turbulence that may cause Greece, the euro zone could not shake like 2010 or 2012. so" (Read the whole story in the new MIRROR .)

The opposition alliance SYRIZA is a church with many currents, said the Finn, who is now a deputy in the European Parliament. "It will be difficult to hold together this alliance." Reason why it will require concessions from Brussels.

A haircut, as of SYRIZA chief Alexis Tsipras required Rehn deems preventable. However, the EU partners should help Greece to reduce Greece's debt burden. "But we can also be achieved by extending the maturities of the loans."

The federal government, however, maintains by SPIEGEL information Greece's exit from the euro zone for almost inevitable if Tsipras the government takes over after the elections, the austerity gives up and no longer served the country's debt.

Contrary to its line, the federal government is willing to let Greece if necessary withdraw from the euro zone. Chancellor Angela Merkel and Finance Minister Wolfgang Schäuble (CDU both) will hold a secession from the common currency for acceptable.

The reasons for that the progress that has made the euro zone crisis since the Peak 2012, according to government sources. Thus, the risk of infection for other countries was limited because Portugal and Ireland are considered to be rehabilitated. In addition to the ESM am a powerful recovery mechanism available for the safety of large banks worry the Bank Union.

Berlin insists it expects Greece to remain in eurozone

Germany has insisted that it expects Greece to stay in the eurozone, despite a news report claiming Berlin was ready to see Athens quit the common currency if the populist Syriza party wins this month’s snap election and reneges on the country’s reform programme.

Der Spiegel magazine reported on Sunday that Chancellor Angela Merkel was abandoning her previous commitment to keeping Greece in the eurozone at any price, and preparing instead for a possible Greek exit in the event that Syriza — which has called for drastic debt cuts and an end to austerity — confronts EU partners with unacceptable demands.

Ms Merkel and Wolfgang Schäuble, her hardline finance minister, have changed their approach because they think the stability of the whole eurozone is no longer at risk as it was at the height of the crisis in 2012, says the magazine, citing unnamed officials.

The article comes amid a growing media debate in Germany about the wisdom of further assisting Greece in the face of the country’s huge debt burden, the popular opposition to austerity and the likelihood of victory for Syriza, which is leading opinion polls.

However, Ms Merkel’s government said on Sunday that it was working on the assumption that even after a Syriza win, Athens would continue to satisfy the requirements of its international creditors, headed by EU institutions.

Georg Streiter, the deputy government spokesman, said: “Greece has fulfilled its obligations in the past. The federal government is assuming that Greece will continue to meet its obligations.”

The finance ministry said it did not comment on “speculative reports”. It referred to a statement from Mr Schäuble, published shortly after the election was called in Greece, in which he said there was no alternative to Greek efforts to overhaul the economy, which were “bearing fruit”.

“If Greece chooses a different path, it will become difficult,” added Mr Schäuble, saying elections did not change the fact that Athens had to stand by its agreements.

The foreign ministry echoed that line, with Michael Roth, the Europe minister, tweeting: “Greece is a member of the eurozone. And it should remain one.”

But the anti-euro Alternative for Germany (AfD) party was quick to seize on the magazine article to poke a finger at Ms Merkel. Bernd Lucke, the party leader, said: “I welcome this belated insight from Ms Merkel and from Schäuble that a Greek exit from the euro would be bearable.”

Carsten Nickel of Teneo Intelligence, a political analysis company, said reports that Germany was considering the option of a Greek euro exit were “intended to send a strong signal to Athens ahead of the upcoming snap general elections”.

He said that “they should not be misread as a definitive positioning in case of Greek non-compliance” with its debt obligations and reform commitments. “It is far more likely that Berlin will develop its strategy of dealing with a new Greek government on the go, and in a more flexible manner.”

However, people close to the government argue that it is most unlikely that chancellery or finance ministry officials had sought to send Greek voters a signal. In their view, the possible advantages of such a move are far outweighed by the potential risks of inflaming anti-EU and anti-German opinion in Greece by being seen to be intervening in the election.

Nevertheless, there is widespread agreement in government circles on the point that a potential “Grexit” is today less of a threat than three years ago. Not only are debt-laden countries, including Greece, making progress with reforms but the EU has backed the eurozone with new institutions, while many commercial banks have raised fresh capital.

The survey for Sunday's Eleftheros Typos newspaper was conducted on Dec. 29 to 30, after Prime Minister Antonis Samaras failed to have his candidate elected president by parliament.

The poll put support for Syriza at 30.4 percent against 27.3 percent for the conservatives of Samaras's New Democracy party, if an election were held now, a slight narrowing from a 3.4 point lead in a previous Rass poll last month. The election has been set for Jan. 25.

In the latest survey, the KKE communist party was third on 4.8 percent, followed by the centre-left To Potami with 4.7 percent, and the far-right Golden Dawn with 3.8 percent. The Socialist party Pasok, which rules in coalition with New Democracy, polled just 3.5 percent.

Syriza has led New Democracy in opinion polls for months, but its lead has narrowed in recent weeks.

In the poll, 74.2 percent agreed that Greece must stay in the euro zone "at all costs", and 24.1 percent disagreed.

The survey was conducted on a sample of 1,002 Greeks.

- Says: "The country's currency reserves are still enough to meet debt obligations for two year." 

- Russia is "forced to make a "dramatic reduction of imports, which exposes the Russian population to a high psychological strain" and risks dangerously destabilizing Russian society.