Activist investors made serious efforts in recent months to strip Allergan CEO and chairman Brent Saunders of some of his duties, but they came up short-handed in their attempt.
Sixty-one percent of Allergan investors voted against a proposal brought by hedge fund Appaloosa to split Allergan's chairman and CEO roles immediately. Allergan has said it’ll split the roles as part of its next leadership change, but that didn’t appease some unhappy investors.
Allergan’s board in a statement said it takes “seriously the feedback we received during our shareholder engagements leading up to the Annual Meeting and look forward to a continued dialogue moving forward.”
In a note after the results, Evercore ISI analyst Umer Raffat wrote that while some investors are concerned, many believe "a separation of Chairman and CEO roles results in a stalemate—and that tension among shareholders will continue into coming months and effectively cap the upside in stock."
In making the split suggestion back in February, Appaloosa’s David Tepper wrote that the company “requires a fresh approach to its business strategy and an unbiased review of its capabilities, opportunities and way forward.” He pointed to numerous slip-ups in recent years and said the company has been an underperformer against its peers. The investor said Allergan's management is responsible for more than $13 billion in balance sheet write-downs in 15 of the last 16 quarters, plus "embarrassing legal initiatives," a "failed acquisition strategy resulting in an underperforming product pipeline," a lower stock price and "stunningly excessive" management compensation.
Wednesday's vote may surprise some market watchers, as some analysts believed the resolution would pass. Now, Allergan is moving forward with its current structure, and some investors are likely to be unhappy.
Before the vote, Bernstein analyst Ronny Gal wrote that his team believed the resolution would pass based on their conversations with investors. And last week, SVB Leerink analyst Marc Goodman wrote a scathing note about the company’s performance in recent years. The analyst believed there was a chance the resolution would pass or come close to passing.
“It’s clear from our conversations with investors that something needs to change,” Goodman wrote.
Likely key to Wednesday’s results were Allergan’s support from Institutional Shareholder Services and Glass Lewis, which recommended shareholders vote against the proposal. Both groups said Allergan has been responding to investor concern. For one, the company has appointed former Celgene CEO Bob Hugin to lead a new M&A committee.
Writing on the results, RBC Capital Markets analyst Randall Stanicky pointed out that the recommendations "clearly" influenced the result, and that active investors will be "left frustrated." He said even the 39% of the vote that the resolution received will send a message that Allergan's management "needs to address."