|Allergan CEO David Pyott|
Allergan ($AGN) CEO David Pyott last week said his goal was to give shareholders "most of what they want" to keep them on his side of a takeover battle with Valeant Pharmaceuticals ($VRX). Now, Allergan is trying to do just that, weighing a share buyback as part of a larger plan to dodge the Canadian pharma's hostile advances.
Allergan may take on debt for a buyback, Pyott told Reuters--and the company has plenty of room to do that. Allergan could borrow up to $10 billion without affecting its investment-grade rating.
The company may take other steps, too. It could grow by making its own deals. Or increase spending cuts to boost profits and increase shareholder value.
Allergan, whose board unanimously spurned Valeant's $53 billion takeover offer, expects to lay out its plans for independence when it releases second-quarter results later this month. But convincing shareholders won't be easy, Sanford C. Bernstein analyst Ronny Gal told the news service.
"The question is, how big of a buyback and how big are the cost cuts?" Gal said, noting that Allergan needs to up its value by $10 per share in 2015 or $11 per share in 2016 to keep near-term investors hooked. "When I run my numbers, a buyback alone doesn't quite cut it. A buyback plus another round of costs cuts, or the acceleration of the discussed cost savings, does."
An acquisition of Allergan's own could be tricky, too. Earlier reports claimed it could go back for another try at Ireland's Shire ($SHPG), which would provide the tax benefits that Pearson says a merger with Valeant could bring. But Shire is doing its best to keep flying solo, too, and AbbVie is now also on the hunt to take it over.
|Valeant CEO J. Michael Pearson|
Meanwhile, Valeant CEO J. Michael Pearson and activist investor partner Bill Ackman are working to take their battle directly to Allergan shareholders. Valeant needs investors holding 25% of Allergan shares to call a special meeting, at which it plans to overturn its buyout target's board and nix its poison pill defense. Pearson says he has the support he needs on top of the 9.7% stake controlled by Ackman's Pershing Square Capital Management.
And one thing is certain, he says: Valeant's offer won't be going anywhere--at least, not for now.
"We have a walk away price for Allergan. I can't tell you what our walk-away price is, but right now we don't have any reason to raise because we would be bidding against ourselves," Pearson said.
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