Pyott's 'conflict of interest' thwarting Valeant's buyout efforts, Ackman says

Allergan CEO David Pyott

Is a position as one of the industry's top-paid CEOs enough to prompt Allergan's ($AGN) chief to dis Valeant's ($VRX) buyout efforts? Investor and takeover partner Bill Ackman thinks so, and he made that argument in a public letter Monday.

Ackman--now Allergan's largest shareholder, with his Pershing Square Capital Management controlling a 9.7% stake-- laid out the "conflict of interest" surrounding David Pyott, urging board director Michael Gallagher to get in touch instead. The way Ackman sees it, if Valeant swallows Allergan, Pyott will lose his leadership role at the company and, Ackman noted, likely his job, putting him in an ethical tie-up that Ackman called "disabling."

But Gallagher and Allergan defended their chief, slamming Ackman's "blatant attempt to isolate" Pyott. He "has created enormous value for the Allergan stockholders" and is "keenly focused" on their best interests, Gallagher wrote in a response later that day.

While that may be true, Pyott does have a financial stake in keeping his job; in 2012, he netted a 51% pay increase that depends on his long-term role at the company. His stock awards went from $178,369 the year prior to $9.4 million with a one-time bonus that helped fuel that leap--but he'll have to hang around if he wants to collect. Those performance shares vest in 2017, but only if he stays on till then and creates about $14.4 billion in new stockholder value along the way.

Pyott also has plenty to gain over the short term if he leaves, however. Between cash severance, employment benefits and accelerated stock and options, he'll lock up a $34,955,619 golden parachute in the event of a merger--not too shabby.

Bill Ackman

That won't necessarily stop Ackman from continuing to rail on Allergan management until it negotiates with the Canadian deal machine and its operator, CEO J. Michael Pearson. In the absence of direct communication with the wannabe acquirers, Ackman says Pyott and others at Allergan have spread misleading information about Valeant and its business model. He and Pearson intend to clear that up at a May 28 webcast, during which they will present a bid sweeter than the $47 billion offer the California company shot down and outline the company operating model that resistant Allergan so dislikes.

But with all of that already on the schedule, BMO Capital Markets analyst David Maris, for one, doesn't find the California company's taciturnity hard to understand. "Why would Allergan agree to any further discussions when Valeant has already said they are going to come out with a new bid on the 28th?" he asked Reuters.

- read the letter from Ackman
- read the response from Gallagher
- get more from Reuters

Special Reports: 20 Highest-Paid Biopharma CEOs of 2012 - David Pyott - Allergan | The most influential people in biopharma today - J. Michael Pearson - Valeant | Pharma's top 10 M&A deals of 2013 - Valeant/Bausch + Lomb

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