Proxy firm ISS presses Allergan to allow shareholder vote; questions board’s credibility

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Allergan Inc. is under growing pressure to allow its shareholders to vote on any transaction it decides to go ahead with as an alternative to the hostile takeover offer from Valeant Pharmaceuticals International Inc.

High-profile proxy advisory firm Institutional Shareholder Services has taken the unusual step of questioning the Allergan board's credibility in the bitter takeover battle and calling on the company to give shareholders a say on major strategic decisions.

Botox-maker Allergan Inc. is currently in advanced talks for a merger, estimated at about $10-billion (U.S.), with Salix Pharmaceuticals Ltd. that would make it too big and costly for Valeant to acquire.

But California-based Allergan's defensive tactic against the unwanted takeover bid would not require a shareholder vote if its offer for Salix is all-cash.

"Allergan has repeatedly indicated it is looking for acquisitions to help create shareholder value. But a large acquisition would also likely kill off the Valeant offer by making Allergan too big – regardless of whether that acquisition actually adds meaningful, let alone greater, value to shareholders," ISS said.

An Allergan spokesman said on Thursday that the company is not commenting on the ISS note to its clients.

"Allergan shareholders need – and any board confident of its own strategy and business judgment should welcome – an unfettered vote on [Valeant's] offer versus the new strategic plan."

Laval, Que.-based Valeant's partner in the unwanted $53-billion bid, U.S. activist investor Bill Ackman's Pershing Square Capital Management LP, is threatening to sue Allergan if it proceeds with a merger deal with Salix without putting it to a shareholder vote.

Allergan has repeatedly dismissed Valeant's proposal, saying it is "grossly inadequate" and significantly undervalues the company.

Last Friday, shareholder T Rowe Price Associates, said Allergan's board has a "special duty" not to do any major deals between now and Dec. 18, when shareholders vote on Valeant and Pershing Square's proposal to remove a majority of Allergan's directors, "unless shareholders are offered the opportunity to vote on them."

Other influential institutional shareholders – including Jackson Square Partners and Pentwater Capital Management – agree that speeding ahead with a large acquisition would thwart other value-creating deals for Allergan.

"When nearly a fifth of outstanding shares, increasingly uneasy about the [Allergan] board's stewardship, feel compelled to publicly reiterate that point, there is a credible argument to be made that the board should give shareholders a deciding vote on any large, buyout-blocking acquisitions if the board is simultaneously rejecting premium offers for the company," ISS said.

"The credibility question is amplified when a board has demonstrated little interest in other opportunities to enhance shareholder value until was suddenly face-to-face with an unsolicited premium offer."

It was first reported in July that Allergan and Salix were in talks and that Allergan had rejected a takeover bid from Actavis PLC that was not much higher than the Valeant offer.

Pershing Square, Allergan's largest shareholder with a 9.7-per-cent stake, and Valeant launched their hostile offer in April.