The Activist Investor Blog
The Activist Investor Blog
A ‘C’ for the Deal Professor
We typically read everything from Steven Davidoff Solomon, the bright law professor who writes the Deal Professor column in the New York Times DealBook. We frequently tweet his work. We usually like his thinking - but not this week.
A column on the Allergan-Valeant-Pershing Square (PS) situation (yes, again, sorry) accuses all sides of “being...too clever for their own good.” He blames “an army of well-paid advisers” that is “consumed with outmaneuvering the other side” for losing “sight of what their ultimate goal is: the future of Allergan itself.” We blame the entrenched, self-interested leadership at Allergan.
According to Solomon, the cleverness includes:
❖Valeant skirting antitrust rules through PS
❖Allergan discrediting Valeant’s business model with its public relations campaign
❖Allergan suing PS for insider trading
❖PS calling a special shareholder meeting instead of nominating directors at the 2014 annual meeting
❖Allergan imposing onerous terms on the special meeting request.
We agree that Allergan has made some interesting moves, although we hesitate to call them “clever”; “aggressive” or “venal” comes to mind.
We don’t have a view about whether the partnership seeks to evade Hart-Scott-Rodino filing requirements. We’ve seen a number of reasons why Valeant and PS got together, including the mutual desire to make some money, and how they bring together industry expertise and activist experience. These don’t qualify as cleverness for it’s own sake, or arise at the behest of well-paid and egotistic advisors.
We have studied the special shareholder meeting, though. PS’ necessary, rather than clever, strategy arises out of Allergan’s stubborn reliance on the high barriers to shareholder representation in its bylaws.
Solomon claims that Valeant and PS “skipped the chance to nominate directors at Allergan’s annual meeting held on May 6.” We doubt Valeant and PS deliberately skipped the annual meeting to pursue their clever strategy.
Instead, the timing of the annual meeting, along with Allergan’s poison pill and resistance to even meeting with Valeant and PS, dictated the process. We know this from the special shareholder meeting filing.
Valeant and PS finalized their plan in April of this year. It took them from January to April to work out their relationship and design a proposed deal for Allergan. They formalized their approach on April 3.
Valeant and PS went public with their ownership stake on April 21, and offer the next day. They indicated clearly they wished to meet with Allergan leadership. They had to - Allergan’s new poison pill (approved on April 22) limited a direct offer to investors.
Allergan rejected the offer on May 12, six days after the 2014 annual meeting. Valeant and PS hardly “skipped the chance” to nominate directors - they had to wait for Allergan.
Suppose, though, that Valeant and PS wanted to escalate the matter to a BoD vote immediately, rather than wait for Allergan’s response to the offer. The could have done so no earlier than April 3.
The deadline for submitting BoD nominations was April 6 (30 days before the May 6 annual meeting). Valeant and PS could not have recruited nominees, assembled the extensive disclosure, and submitted everything to Allergan in three days’ time.
What clever move could Valeant and PS make next? Wait for the 2015 annual meeting? Allergan could (cleverly) delay that well into late 2015. Or, call for a special shareholder meeting? That might take place much sooner, probably in late 2014.
Solomon makes it look like each side wants to out-think the other with clever strategies and tactics. More accurately, Allergan has built an arsenal of defenses against shareholder representation. Valeant and PS have merely responded in kind.
Solomon pleads, “Wouldn’t it be better if, instead of maneuvering, both sides simply put forth their best case and bid? But that would be too simple.” We suggest, wouldn’t it be better if instead of blaming everyone, he calls out Allergan for spending millions of investor dollars to block shareholders from expressing their will? But, that would be too simple, too.
Thursday, August 14, 2014