What do Allergan activists really want? A new CEO to replace Saunders, analyst says

Brent Saunders
Activists are pushing for Allergan to strip at least one role from Brent Saunders, who currently serves as both CEO and chairman. (Allergan)

Activists have been pushing for a split of the CEO and chairman’s roles at Allergan. But the way one analyst sees it, the campaign is about more than just the split.

As Bernstein analyst Ronny Gal wrote in a note to clients this week, “There is no such thing as ‘censuring’ a CEO’s business performance; splitting the role now amounts to letting” chief executive Brent Saunders go. And that may be just what rebel investors Appaloosa and John Chevedden had in mind.

Pushing for governance “in this case is a convenient way to argue for leadership change given stock performance,” Gal wrote.

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Appaloosa was the first to suggest the measure, which it raised last year with a letter to the company’s board. The fund's leader, David Tepper, followed up in February, citing "chronic underperformance" at the Dublin drugmaker. Support from Chevedden came more recently, after Allergan agreed to make the tweak—but only after Saunders gives up the baton.

That move "falls short of improved governance and once again lays bare your reluctance to hold management accountable for its dismal performance,” Tepper criticized, with Allergan responding that it “strongly” disagrees an immediate separation is necessary.

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Gal, for his part, agreed. “Our view is that current leadership is not error-free, but [many] of the issues facing the company stem from independent factors,” he wrote. Those factors include competition to the company’s top products: Botox and Restasis.

Nevertheless, Allergan now seems bound for an advisory vote on the executive divide, Gal noted, predicting two options for investors to choose between—one from Appaloosa and one supported by management—on May 1.

“The results will set the tone for what could be a broader leadership fight in 2H19,” he wrote, adding, “We believe 2019 performance is likely critical in determining the outcome.”