Should I Tender My Allergan Shares To Valeant Pharmaceuticals?

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Recently I received a notice of an offer for Allergan (AGN) stock. We regularly receive many of these tender offers. Usually if someone is making an offer to purchase stock you should not sell it to them. If even the person making the tender offer thinks it is better to hold the stock, there isn’t a great deal of incentive to disagree and tender (sell) them the stock.

The only case where it is good to act is if the deal is completed and you are about to receive cash for your highly appreciated stock and you are charitably inclined. In that case you can give your stock to your favorite charity before you are cashed out and have to pay capital gains tax.

The Allergan offer is another example of why trying to analyze these offers is usually a waste of time.

Reuters had a nice article showing the timeline of Ackman and Valeant maneuvering for Allergan.

The article chronicles the many interesting steps as “Valeant Pharmaceuticals International Inc has teamed up with Pershing Square Capital Management, led by activist investor William Ackman, to make a run at Botox maker Allergan Inc.”

Here are the details of some of the most interesting steps along the way:

April 21 – U.S. regulatory documents show that Ackman had purchased an almost 10 percent stake in Allergan on the open market over several months and plans to bid for the company jointly with Valeant.

April 22 – Valeant and Ackman propose buying the company in an unsolicited cash and stock bid worth about $47 billion, or about $152.88 per share. Allergan’s board of directors adopts a “poison pill” provision that prevents Ackman from raising his stake above 10 percent by threatening share dilution.

April 28 – Allergan eyes takeover possibilities as a defensive move, according to sources familiar with the situation.

May 2 – U.S. regulatory documents show that Pershing Square is sitting on more than $1 billion in gains on the Allergan takeover bet.

May 7 – Allergan reports better-than-expected first-quarter profit and says it is weighing the buyout offer.

May 12 – Allergan rejects the offer, saying that Valeant’s planned cost cuts to its research and development budget were not good for its shareholders and that its business model was unsustainable.

May 13 – Valeant says it will sweeten its offer on May 28. Pershing Square files documents to call a non-binding vote of shareholders on the deal.

May 19 – Ackman sends a letter to Allergan’s top director saying that Allergan Chief Executive Officer David Pyott has a “disabling conflict of interest” because he stands to lose his job if the deal goes through.

May 23 – A JPMorgan investor survey shows that Valeant must up its bid to $180 to $200 per share to win shareholder support.

May 28 – Valeant ups its offer with $10 more per share in cash to about $163 per share and says that it will pay out $25 per share if an experimental drug makes it onto the market. CEO Michael Pearson says he is ready to go hostile. Valeant and Allergan shares fall. Separately, Valeant agrees to sell some of its skincare treatments business, including facial fillers for treating wrinkles, to Nestle SA NESN.VX for $1.4 billion in cash.

May 30 – Valeant boosts its bid to around $53 billion and increases the cash. Allergan shares rise, but remain below the about $177 per share Valeant offer.

June 2 – Pershing Square files regulatory documents to start a proxy battle to replace some members of Allergan’s board of directors.

June 9 – Ackman says on CNBC that Allergan shareholders support a Valeant takeover at $180.

June 10 – Allergan rejects Valeant’s raised offer again.

June 14 – Allergan discloses emails in which Valeant’s banker Morgan Stanley called Valeant a “house of cards” in a pitch to win Allergan business, before it was hired by Valeant.

June 19 – Valeant launches the exchange offer for Allergan’s shares.

Perhaps they should make this soap opera into a mini-series.

Unless you like watching this type of stuff, your time is better spent holding tight and waiting for the dust to settle than tendering your shares of Allergan to Valeant Pharmaceuticals.

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David John Marotta is the Founder and President of Marotta Wealth Management. He played for the State Department chess team at age 11, graduated from Stanford, taught Computer and Information Science, and still loves math and strategy games. In addition to his financial writing, David is a co-author of The Haunting of Bob Cratchit.