The Allergan Board under Fire Case Solution
It was big a question against the board of members that had to be answered thoroughly to satisfy the members to accept the proposal. So, members rejected the proposal based on the rationale that financial and operational performance of the company is questionable that it is depended on the acquisitions, and that it has increased the prices of the products to hide the declining sales.
Rational for rejection
The rejection of the proposal was based on the performance of Valeant. The company previously has declining sales, and it could not boost sales by any means and increase the prices of the products. Second, that its acquisitions have not created value for the target company because, the Allergan was moving from strength to strength and Valeant has been losing momentum.
The revenues and EPS of the Allergan has increased by 15.9%, and 23.8% in 2014. But, in contrast the Valeant has declined revenues and EPS by 3.75%, and 7.6% respectively in the quarter of 2014. So, it can be determined that performance of Valeant was questionable. On the other hand, there have been many inconsistencies, and omissions in the financial statement of the company.
Furthermore, in rationale the acquisition of the target company also has declined as, acquisition of the Medics by Valeant has worst impact on the Medics. Medics has well known products in the market which were the highest revenue contributors for the company because, 36% sales of one top performing product has declined, and two other productsâ€™ sales have also declined 29%. In contrast the sales of the Allergan has increased by 30%-40% in each category.
The second round of the bid was also rejected by the board in which Valeant increased its bid for the $58.30 in cash plus 0.83 Valeant share but, as usual it was rejected by company. Indeed, the hostile takeover example cannot fit in this situation, until and unless the board members are taken under pressure by the shareholders. So, an attempt to the hostile takeover also did not work for Valeant.
The Valeant has announced a tender notice to the public to offer $72 in cash and plus 0.83 for each share of the Allergan. This attempt to directly approach the shareholders was considered to be right by the Valeant Company. This is considered insider trading that Valeant and Ackmanâ€™s owned hedge fund did recently. It articulated that Perishing Square capital management (PS) is owned by the Ackman who is the largest shareholder of Valeant.
Meanwhile, Ackman and Pearson have strategy to acquire companies. The Medics company was also acquired through insider trading. Ackman knew that Valeant would acquire the companyand when proposal was sent Ackman emphasized on the deal to be accepted.
So, it can be determined that it is like manipulating the market, and utilization of the insider trading technique to acquire the target company. So, it is illegal and a violation of the law of the securities and exchange commission of the company. So, suit and legal action against the Valeant and Ackman was taken to challenge their right to vote and provide evidence of their insider trading in manipulating the market.
However, the large shareholders of the Allergan have showed their intention that they would support to the proposal of Valeant if they increase their offer to $180 per Allergan share. But, Valeant only rose up to the $72 per share of Allergan. So, there were no room left for Valeant that it could attempt to acquire the Allergan.
The primary focus of the Allergan is to innovate product, and invade the market. It has five different pillars of product portfolio, and company has initiated plan to acquire the Salix to make its portfolio of the products leveraged into the market because, the acquisition of the Salix would provide sixth gastrointestinal pillar and company would have six products portfolio pillars of the different categories.
The Salix has been manufacturing different products but it is focused on the gastrointestinal medications. Therefore, acquisition of the Salix would enable company to leverage its investment into the market, and cut the costs of R&D, and improve the revenues through the strong established distribution channel throughout the 100 countries. So, there would be more synergetic effect acquisition.
Acquisition of the Valeant and the Allergan is not possible as it is opposed by the board. But, it is amajor concern that has the board taken the right option to not accept the proposal of the Valeant. So, it can be said that board has not sufficient information about the Valeant, and the BOD was briefed by the management shortly.
So, it is also possible that management was not ready for being acquired, or the acquirer was incompetent. It can be evaluated that Valeant was one leading company in the Pharmaceutical industry having different products, distributing worldwide.
It has acquired some developed product companies in the market and has not focused on the research and development rather on acquisitions. So, in long-term it has no growth plan. On the other hand, it has declining sales, and its acquired companyâ€™s products have been performing worst………………
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