Valeant-style cost cuts create win-win for Allergan shareholders, analysts say

Allergan CEO David Pyott

With Monday's announcement that Allergan ($AGN) would chop jobs and cut research, Valeant ($VRX) says its acquisition target is taking a page from its own playbook. Allergan says it's just doing what it can to create value for shareholders. Call it what you want: According to analysts, the move is a win for Allergan investors--whether a deal gets done or not.

To sway stockholders away from Valeant's $53 billion hostile bid, Allergan has laid out plans to ax 1,500 workers in a restructuring designed to save $475 million next year. Valeant's takeover partner Bill Ackman belittled the plan on Bloomberg TV, calling the cost cuts "Valeant-light"--a scaled-down version of what Valeant's merge-and-purge acquisition strategy might achieve.

But there's no denying the revamp will make Allergan a stronger company, analysts say. Whether or not the plans actually deter a Valeant buyout, investors will benefit, Bernstein analyst Ronny Gal told The Wall Street Journal.

"Allergan shareholders win either way," he said. "The fair value of the company clearly has gone up."

And Allergan CEO David Pyott is looking to take that value still higher to keep shareholders loyal. As he told the WSJ, the company is scouting for acquisitions and "very determined that something will be transacted." If that's the case, investors will likely require a higher bid from the Quebec-based pharma, Sterne Agee analyst Shibani Malhotra wrote in a note to investors.

Worry not that AbbVie ($ABBV) last week swooped in to grab Shire ($SHPG), once an Allergan target thanks to its tax-advantaged Irish domicile. The Botox-maker still "has a lot of options," Pyott told Bloomberg, saying "to focus on Shire alone is in the category of nonsense."

Bill Ackman

But Pyott's opponents feel differently about an Allergan buy of its own. Valeant CEO J. Michael Pearson told Bloomberg TV that a "non-value creating deal" could push his company's offer lower--if not scare it off altogether. And as Ackman put it to Bloomberg, Pyott "talked about running out and doing an all-cash deal that wouldn't require shareholder support, as a way to defend the company. I'm frightened of that, as should any shareholder."

- see the WSJ story (sub. req.)
- read Bloomberg's take

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

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