Allergan Inc. is slashing 1,500 jobs – about 13 per cent of its work force – in a major streamlining effort as it moves to bolster its defences against a hostile takeover bid from Valeant Pharmaceuticals International Inc.
Botox-maker Allergan also said it will eliminate an additional 250 vacant jobs as part of a sweeping cost-cutting and efficiency-boosting initiative it says will deliver annual pre-tax savings of about $475-million (U.S.) in calendar 2015.
The restructuring is part of Allergan chief executive officer David Pyott’s strategy to boost earnings, cut spending and demonstrate that the company can create better shareholder value as a standalone rather than in a tie-up with Laval, Que.-based Valeant.
Among other possible anti-takeover actions Allergan has previously discussed are making a major acquisition or buying back shares.
A strategic acquisition is at the top of Allergan shareholders’ wish list and the company is currently exploring that option, Mr. Pyott said on a conference call Monday.
“Fallbacks,” in the event an acquisition cannot be done, include a share buyback and a special dividend for shareholders, he said.
Allergan said on Monday its strategic plan is expected to deliver a compound annual earnings-per-share growth rate of more than 20 per cent between 2014 and 2019, with 2014 EPS of between $5.74 and $5.80 and 2015 EPS of between $8.20 and $8.40.
The previous forecast was for 2014 profit of $5.64-to-$5.73 per share.
The cost-saving measures surprised some analysts by being more ambitious than expected.
“Who says shareholder activism doesn’t work,” UBS Securities analyst Marc Goodman said in a research note Monday.
Valeant chairman and CEO Michael Pearson said in an interview Monday that “the only way to truly get the most value [at Allergan] is to actually do the merger” and that Allergan is doing exactly what Valeant proposes to do but on a more modest scale.
For the second quarter of 2014, Allergan posted net profit of $418-million or $1.40 per share, compared with $361-million or $1.22 in the year-earlier period.
Profit per share in the quarter was $1.51 when one-time items are excluded.
Analysts’ consensus estimate was $1.44.
Meanwhile, Valeant said on Monday it has filed a complaint with securities regulators in Quebec and the U.S. over allegedly unfair tactics by Allergan Inc.
Valeant said it has contacted both the Autorité des marchés financiers and the U.S. Securities and Exchange Commission regarding Allergan’s “apparent attempt to mislead investors and manipulate the market for Valeant’s common shares by continuing to make false and misleading statements regarding Valeant’s business despite Valeant’s public statements correcting such information.”
Valeant says Allergan falsely stated last Friday in an SEC filing that Valeant’s Bausch + Lomb pharmaceutical sales were stagnant or declining, when in fact they grew about 6 per cent in the second quarter.
The U.S. prescription pharmaceutical business grew 17 per cent over the year-earlier period, with the lion’s share of that growth due to volume increases, the company said.
“We can no longer tolerate unjustified attacks on Valeant’s business and strongly believe we are obligated to take action to protect Valeant’s shareholders from Allergan’s apparent attempts to mislead investors and manipulate the market for Valeant stock,” Mr. Pearson said.
“Their ongoing tactics reinforce how imperative it is that Allergan stockholders call a special meeting to amend the company’s unduly onerous and non-stockholder friendly by-laws, remove six directors, and propose the appointment of new directors, who will thoroughly evaluate Valeant’s offer, which represents a strategically compelling and enormously value-creating opportunity for Allergan stockholders at a 50 per cent+ premium to Allergan’s unaffected share price.”
Valeant also said that its complaint to regulators reflects concerns that several Canadian Valeant shareholders have raised over comments made about Valeant by Allergan executives in recent meetings with those investors in Canada.
“We think it’s outrageous that Allergan would come and meet our investors in Canada and the only purpose was to get Valeant stock to go down,” Mr. Pearson said in an interview.
An Allergan spokesperson said in an e-mail response that the company “stands by its comments. We call on Valeant to report complete and transparent details on its business on an ongoing basis. At the end of the day, investors will make their own decisions.”
Valeant, backed by activist investor Bill Ackman, unveiled its cash-and-stock offer in April and has sweetened it twice since then, but Allergan has rebuffed the proposal and refuses to sit down with Valeant to discuss the proposed transaction.
The proposed deal was recently valued at about $180 per Allergan share, but it fell to about $173 last week on a decline in Valeant shares.
Allergan says Valeant’s offer drastically undervalues Allergan’s value and would be destructive to its R&D-driven business; Allergan also claims that Valeant produces unreliable financial reporting.
Valeant contends that a merger would produce major cost savings without hurting Allergan’s R&D and sales and marketing activities.