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CEO says Allergan’s strong future growth negates need for Valeant deal

Allergan CEO David Pyott says the company’s bright future makes it easy to refuse Valeant’s $54-billion takeover bid.

Brendan McDermid/Reuters

Allergan Inc. chief executive officer David Pyott says talking with would-be acquirer Valeant Pharmaceuticals International Inc. is a non-starter, given the strong shareholder backing and exceptional growth opportunities his company has as a stand-alone.

"We do not believe Valeant's proposal reflects Allergan's growth prospects, nor does it offer sufficient or certain values to warrant discussions between Allergan and Valeant," Mr. Pyott said in a news release Tuesday.

Mr. Pyott said he's confident Allergan will survive efforts by Valeant partner Pershing Square Capital Management LP to push out a majority of Allergan's board and by Valeant to put its proposal directly to shareholders.

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"We see this in a very sanguine, dry, pragmatic way. Finally, it will come down to 'Can Allergan put enough value on the table so shareholders stick with us or not?'" Mr. Pyott said in an interview on Tuesday after Allergan's board unanimously rejected Laval, Que.-based Valeant's revised offer.

Allergan anticipates double-digit sales growth and earnings-per-share compounded annual growth of 20 per cent over the next five years, and a strategic plan involving new products will generate about $14-billion (U.S.) in additional cash flow over the next five years, he said.

"We're hearing from our investors that they see significant inherent value in the company. They are very supportive of us," Mr. Pyott said. "They believe Allergan can continue to deliver even greater shareholder value."

The battle for control of Botox maker Allergan ratcheted up further Tuesday as Mr. Pyott slammed Valeant for its "serial acquisitions and cost reductions, as opposed to top-line revenue growth and operational excellence."

Valeant uses "opaque" financial reporting that provides limited insight into how past acquisitions and products are performing, Mr. Pyott said in a letter to Valeant CEO Michael Pearson.

Allergan said in an updated investor presentation that Valeant's growth so far this year is based on "substantial" product price increases instead of volume growth.

Valeant responded Tuesday, saying Allergan is distorting the picture regarding Valeant's business model.

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"Rather than discussing the benefits of the proposed combination with Valeant, Allergan's board continues to throw out inaccurate and misleading statements about Valeant and is recycling the same unsupported arguments about Valeant that have already been addressed, leaving us no choice but to take our offer directly to shareholders," said Valeant spokeswoman Laurie Little.

"The Allergan board continues to demonstrate an unwillingness to engage with Valeant, which is the minimum it would need to do to properly evaluate the value of our offer."

Allergan said on Tuesday that Valeant's latest bid – valued at about $54-billion and comprising $72 in cash and 0.83 of a Valeant share for each Allergan share – is too risky and "substantially undervalues the company."

Valeant says a tie-up with Allergan would produce major cost savings without hurting the latter's research and development and sales and marketing activities.

Mr. Pyott said in the interview Tuesday that Allergan continues to explore alternatives to Valeant's bid.

Sterne Agee industry analyst Shibana Malhotra said in a note Tuesday that some Allergan investors might be concerned over the latest rejection of Valeant's bid without the company even discussing it. But he added that Allergan "has a history of acting in the best interest of its shareholders. As such we remain confident that Allergan has either identified strategic options that it is confident will drive enhanced shareholder value or will be willing to negotiate with Valeant."

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About the Author
Quebec Business Correspondent

Bertrand has been covering Quebec business and finance since 2000. Before joining The Globe and Mail in 2000, he was the Toronto-based national business correspondent for Southam News. He has a B.A. from McGill University and a Bachelor of Applied Arts from Ryerson. More


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