Investors press Allergan to find deal
Shareholders in Allergan are encouraging the Botox maker to do a large acquisition of its own as it tries to fend off a $53bn hostile bid from rival drugmaker Valeant Pharmaceuticals.
David Pyott, Allergan’s chairman and chief executive, told the Financial Times he recognised that the company, which has $14bn of cash on its balance sheet, should act sooner rather than later if it was going to make an acquisition.
“Our stockholders have been fairly clear that if we have a deal that we can do, we should do it soon. On the other hand, Valeant is trying to use our own balance sheet to buy us.”
His comments will lend weight to speculation that Allergan executives could use a large acquisition to undermine Valeant’s cash and stock offer, in the latest dealmaking twist in a rapidly consolidating healthcare sector.
Since being targeted by Valeant, which is working with Bill Ackman, the activist investor who runs the Pershing Square hedge fund, analysts have linked Allergan to a string of possible takeover targets, the most recent being Shire, the UK drugmaker that is itself the subject of a $51bn bid from AbbVie of the US.
Mr Pyott declined to comment on whether Allergan was working on, or planning to launch, a bid for Shire.
A top 15 shareholder in both Allergan and Shire told the FT that the UK company would be more likely to accept an offer from Allergan than from AbbVie, even at a lower price, and that he would support such a choice because of Allergan’s faster growth prospects.
Investor appetite for such a deal comes three months into a fight with Valeant, in which Allergan executives have repeatedly criticised their pursuer’s acquisition-dependent business model.
Allergan’s criticism has also focused on Valeant’s history of cutting costs by scaling back research and development budgets at companies it has acquired. For its part, Valeant has sought to portray Allergan as being inefficient and having a bloated cost structure.
The increasingly bitter battle between the two companies, exacerbated by the presence of Mr Ackman, has informed a wider debate in the pharmaceuticals industry about the appropriate levels of R&D investment large drugmakers should fund.
Mr Pyott acknowledged the need to reduce his company’s research and development spending, which stood at $1.1bn last year.
He said Allergan would freeze some development programmes that were at early stages but added a cautionary note about only investing in projects that delivered short term results: “It’s a challenge for our industry but there is a mismatch between the life cycle of a chief executive and the life cycle of drug development.”