Bausch Health Companies Inc. · TSX:BHC
Bausch Health Companies — Valeant Pharmaceuticals International — Proxy Contest (July 2014)
140 slides from Bausch Health Companies's proxy contest presentation, Jul 23, 2014
Slide 1: Valeant and Allergan: Creating Value Together
ADVANCING ALLERGAN HOME WEBCAST NOMINEES SHAREHOLDER MATERIALS NEWS RELEASES PROPOSED BY-LAWS VALEANT AND ALLERGAN: CREATING VALUE TOGETHER On April 22, 2014, Valeant Pharmaceuticals International and Pershing Square Capital Management announced their joint bid for Allergan. As Allergan’s largest sh
Slide 2: Calling for a Special Meeting of Allergan Shareholders
ADVANCING ALLERGAN HOME WEBCAST NOMINEES SHAREHOLDER MATERIALS NEWS RELEASES PROPOSED BY-LAWS MEDIA CONTACTS July 17, 2014 Webcast DOWNLOAD PRESENTATION Calling for a Special Meeting of Allergan Shareholders July 2014 Pershing Square Capital Management, L.P. VIEW TRANSCRIPT © 2014 Pershing Square Ca
Slide 3: Calling for a Special Meeting of Allergan Shareholders
Pershing Square Capital Management, L.P. Calling for a Special Meeting of Allergan Shareholders July 17, 2014
Slide 4: Legal Disclaimer
Legal Disclaimer This communication does not constitute an offer to buy or solicitation of an offer to sell any securities. This communication relates to Pershing Square Capital Management, L.P.’s (“Pershing Square”) solicitation of written requests to call a special meeting of shareholders of Aller
Slide 5: Table of Contents
I II III IV V VI VII VIII IX A Special Meeting is Warranted Given Allergan’s Record of Poor Corporate Governance The Current Offer Justifies Board Engagement and Meets Investors’ “Asking Price” The Valeant Offer Satisfies the Prevailing M&A Proxy Fight Analytical Framework Investors and Research Ana
Slide 6: A Special Meeting is Warranted Given Allergan's Record of Poor Corporate Governance
I. A Special Meeting is Warranted Given Allergan’s Record of Poor Corporate Governance
Slide 7: Allergan's board has responded poorly to Valeant's offer
To date, Allergan’s board has responded extremely poorly to Valeant’s highly compelling and certain offer Has refused to engage with Valeant Has refused to meet with Pershing Square, Allergan’s largest shareholder, without management present Has attacked Valeant’s business model and management with
Slide 8: The board's actions have deprived shareholders of the opportunity to consider this offer
The board’s actions have deprived shareholders of the opportunity to consider this offer Members of the board of directors of a Delaware corporation faced with a takeover bid are required to inform themselves of all material information about a transaction and then act with care in evaluating it By
Slide 9: Board behavior consistent with past poor governance
This board’s recent behavior is consistent with Allergan’s past poor corporate governance Shareholders deserve the right to elect a board who will protect their interests as owners of the company Shareholders also deserve the right to call a special meeting free of onerous provisions and impediments
Slide 10: ISS commentary on special meeting rights
“In terms of day-to-day governance, shareholders may lose an important right— the ability to remove directors or initiate a shareholder resolution without having to wait for the next scheduled meeting—if they are unable to call a timely special meeting. Shareholders could also be powerless to respon
Slide 11: ISS analysis on Darden Restaurants
“But the value of a shareholder meeting is precisely that it provides a definitive, authentic, and unassailable answer to the question of what shareholders want. Not every shareholder is in agreement on every issue, to be sure—but shareholders in general, and institutional shareholders in particular
Slide 12: Allergan has used procedural restrictions against shareholder proposals
25% of the vote required Timing restrictions Unduly onerous disclosure requirements to make request Restrictions on “similar items” Restriction on stock sales by shareholders requesting a special meeting Shareholder Proposal (% of votes cast) (1) Call special meetings with 10% of the vote (55.3%) Mg
Slide 13: Unnecessary restrictions on calling a special meeting
To frustrate shareholder action, Allergan designed unnecessary restrictions to calling a special meeting Allergan’s Special Meeting Provision Provides a Heavily Restricted Right Requirement for shareholders themselves to become RECORD OWNERS Special meetings may not consider any “Similar Items” cove
Slide 14: Unnecessary restrictions on calling a special meeting
To frustrate shareholder action, Allergan designed unnecessary restrictions to calling a special meeting 25% of the voting power of the company’s common stock required to request a special meeting The meeting request must be “IN PROPER FORM” , meaning the requesting shareholders must make certain co
Slide 15: Special meeting timing restrictions
Management can delay up to 120 days Special meeting window 90-days prior to anniversary of AGM To frustrate shareholder action, Allergan designed unnecessary restrictions to calling a special meeting Allergan’s Special Meeting Provision Provides a Heavily Restricted Right (Cont.) Allergan’s special
Slide 16: Misperceptions regarding calling a special meeting
Allergan’s bylaws as written provide onerous burdens There are, however, misperceptions that need to be addressed Shareholders are required to represent that they intend to hold shares through the special meeting Shareholders are still permitted to sell their shares after announcing their intention
Slide 17: Remedying problematic governance provisions
A special meeting will allow shareholders to remedy these problematic governance provisions as quickly as possible 25% of the company’s shares are required to request a record date to act by written consent Similar unduly onerous disclosure requirements (with ongoing duty to update) for requesting a
Slide 18: Poison pill ambiguity discouraged proxy solicitation
Allergan’s board and management used ambiguity regarding the poison pill to discourage the solicitation of proxies On April 22 nd , the same day that Valeant first announced its proposal, Allergan adopted a poison pill that limits shareholder communication On June 6 th , Pershing Square asked Allerg
Slide 19: Four steps to call a meeting, one to revoke
It takes up to four procedural steps to call a special meeting but only one step to support a revocation Allergan management is soliciting against a fundamental right it has supposedly granted shareholders Allergan shareholders must comply with a series of up to four procedural steps, each requiring
Slide 20: Allergan's argument against holding a special meeting
Allergan states that the distraction and time and financial cost of holding a meeting are the reasons why a special meeting should not be held These costs would go away if Allergan would immediately engage with Valeant regarding the proposed transaction Allergan’s Argument Against Holding a Special
Slide 21: Allergan has ignored its own governance guidelines
Allergan has Ignored its Own Corporate Governance Guidelines Despite this clearly stated guideline, Allergan has refused any opportunity to discuss the Valeant proposal with the lead independent director without Mr. Pyott being present Pershing Square first requested a discussion with Mr. Gallagher
Slide 22: Board independence and alignment concerns
Shareholder proposal passed at 2014 AGM to separate CEO/Chairman roles Lengthy tenure may impact independence and objectivity No “skin in the game”, limited alignment with investors (1) ISS recommended AGAINST the re-election of Mr. Gallagher at the 2014 AGM for failing as Corporate Governance and C
Slide 23: ISS identified high governance risk at Allergan
This May, ISS awarded Allergan a governance QuickScore of 8, indicating a HIGH POSSIBLILITY OF GOVERNANCE RISK (1) ISS Has Identified a High Possibility of Governance Risk at Allergan Source: Institutional Shareholder Services. (1) May 28, 2014 ISS Governance QuickScore Profile. The board did not ad
Slide 24: Why a special meeting is necessary
The existence of a poison pill makes it impossible for shareholders to take advantage of Valeant’s exchange offer for Allergan shares Without a special meeting, Allergan’s board could disenfranchise shareholders on this transaction until the company’s next AGM Allergan could delay the company’s 2015
Slide 25: A viable path to effect a deal
At the Special Meeting, shareholders can vote to remove Allergan directors Pershing Square will propose to remove six of Allergan’s nine directors, to be replaced with new candidates Pershing Square has identified If the Allergan board refuses to appoint these new directors, shareholders of 10% or m
Slide 26: A more sensible path to get there sooner
Receipt of 25%+ support for the special meeting will put pressure on the board to engage with Valeant A director’s removal is not just embarrassing but permanently impairs the removed director’s “career” as a public company director Because negotiating the best price for Allergan with Valeant and ot
Slide 27: Compelling reasons for near-term engagement
Allergan shareholders get paid sooner Reduces shareholder exposure to Allergan operational and deal risk Reduces risk of financing and equity market instability An executed merger agreement legally binds Valeant Allergan will likely have a fiduciary out in a merger agreement so alternative deals are
Slide 28: Proposed nominees: Atkins, Black, Eshelman
Betsy Atkins (61) Chief Executive Officer of Baja LLC Cathleen P. Black (70) Senior Advisor at RRE Ventures LLC Pershing Square is Proposing a Slate of Qualified and Independent Nominees to Protect Shareholder Interests Fredric N. Eshelman (65) Principal of Eshelman Ventures, LLC CEO of Baja LLC, an
Slide 29: Proposed nominees: Shulman, Wilson, Zillmer
Steven J. Shulman (63) David A. Wilson (73) John J. Zillmer (58) Pershing Square is Proposing a Slate of Qualified and Independent Nominees to Protect Shareholder Interests Managing Director of Shulman Ventures, Inc. Former President and CEO of the Graduate Management Admission Council, a not-for-pr
Slide 30: Special meeting allows shareholders to fix bylaws
In addition to providing a forum to vote on the proposed transaction, the special meeting will allow shareholders the opportunity to fix Allergan’s egregious special meeting bylaws If Allergan’s special meeting bylaws are allowed to stand, they will be widely promoted by “defense” firms and will lik
Slide 31: Contact D.F. King, proxy solicitor
We encourage shareholders considering supporting the Pershing Square special meeting consent solicitation to contact D.F. King, our proxy solicitor, with any questions about the process: Ed McCarthy D.F. King (212) 269-5550 emccarthy@dfking.com
Slide 32: The Current Offer Justifies Board Engagement and Meets Investors' Asking Price
II. The Current Offer Justifies Board Engagement and Meets Investors’ “Asking Price”
Slide 33: Pershing Square is Allergan's largest investor with 9.7% ownership
Pershing Square is Allergan’s largest investor with 9.7% ownership On April 22 nd , Valeant announces initial offer to acquire Allergan for 0.83 Valeant shares and $48.30 per share in cash On May 12 th , Allergan rejects initial Valeant offer On May 27 th , Allergan publishes presentation attacking
Slide 34: Pharmaceutical M&A transactions over $15 billion
Source: Company filings and FactSet as of 7/14/14. Note: Mean and median values do not include proposed Allergan / Valeant transaction. Roche / Genetech and Novartis / Alcon transactions excluded because they were multi-stage acquisitions. (1) Total includes upfront and contingent payments at face v
Slide 35: Proper way to value the proposed transaction
Proper Way to Value the Proposed Transaction Valued on an unaffected basis, this transaction is a merger between a $42 billion equity market cap company, Valeant, and a $35 billion company, Allergan Allergan shareholders will own 44% of the combined company In such a stock transaction, one cannot va
Slide 36: Valeant's stock price does not reflect full value of the offer
We believe Valeant’s current stock price does not reflect the anticipated value of the combined entity, including synergies, and therefore serves as a poor measure to evaluate the offer Valeant management believes the transaction delivers immediate accretion of ~25% to Valeant’s EPS on a pro forma b
Slide 37: Fair value of the combined company implies higher offer value
Per Share Cash Consideration Per Share Equity Consideration $72 $151 $223 Total We believe Allergan’s board has erred in using Valeant’s current stock price to value the transaction We believe a valuation that takes into account the fair value of the combined company, of which Allergan investors wil
Slide 38: Independent investment research validates Pershing Square's valuation methodology
Independent Investment Research Validates Pershing Square’s Valuation Methodology
Slide 39: Guggenheim research on valuation
“We also think it is compelling that AGN shareholders can get the $180 deal they wanted now (without assuming an increase in VRX’s stock price) and this excludes the DARPin CVR as well as any potential upside from an increase in VRX’s stock price driven by certainty of a deal. We estimate AGN shares
Slide 40: Current offer meets investors' asking price
Combined Company Stock Price $140 $180 Implied Offer Value $188 $221 Investor View of Value - J.P. Morgan Survey (1) J. P. Morgan’s May 16 th – May 20 th survey suggests investors are seeking a $160 to $200 per share acquisition price: Following Allergan’s May 12 th revised long-term plan announceme
Slide 41: Pharma M&A transactions ranked by upfront premium
Pharmaceutical M&A transactions over $15 billion in last 10 years (ranked by upfront premium paid) Even More Compelling Deal When Valued at the Fair Value of the Combined Company: The “Fair Value”* of the Deal *: Assumes fair value of $223 per share as per page 38av c +-. Transaction Value Premium t
Slide 42: Peer movements imply premium over standalone Allergan
Peer movements since the unaffected date imply a 33% to 72% premium over a standalone Allergan today Dow Jones 04/10/2014 07/14/2014 % Change Implied AGN share price Look-Through Price as a % premium to implied price Fair Value as a % premium to implied price S&P 500 1,833.1 1,977.1 7.9% $125.79 37.
Slide 43: Offer premium to analysts' pre-bid price targets
The offer is a 28% to 65% premium to analysts’ 12-month price targets prior to Valeant’s initial public offer The Offer Represents a Large Premium to Analysts’ Pre-bid 12-Month Price Targets Fair Value Median Look-Through Price (1) (1) $130 $138 $145 $150 $125 $142 $135 $135 $109 $130 $135 $125 $140
Slide 44: How some large shareholders think about the transaction
Valeant’s revised proposal offers substantial value to AGN shareholders and is highly superior to AGN’s standalone value What Valeant’s proposal offers: What standalone AGN offers: 272% increase in earnings per AGN share $72 of cash per share $9.01 of Valeant 2014 earnings per AGN share (1) + DARPin
Slide 45: Valeant offers more value in one year than Allergan in five
The Valeant proposal offers ~$15.50 of EPS in 2014. Allergan offers ~$14 of EPS in 2019 What Valeant’s proposal offers: What standalone AGN offers: 2019 EPS Guidance = ~$14 $0 cash If $72 of cash is reinvested in additional VRX shares at $121/share: 2014 $15.46 earnings per AGN share (1) + DARPin CV
Slide 46: Valeant Offer Satisfies the M&A Proxy Fight Analytical Framework
III. The Valeant Offer Satisfies the Prevailing M&A Proxy Fight Analytical Framework
Slide 47: Framework scorecard: initial offer
Descriptions Score Transaction premium 48% premium to Allergan's unaffected closing share price of $116.63 on April 10, 2014 (see page 101 for unaffected price chart), the final trading day before Pershing Square started to rapidly accumulate shares Transaction multiple 7.9x EV/LTM Revenue 22.8x EV/
Slide 48: Framework scorecard: fair value offer
Descriptions Score Transaction premium 91% premium to Allergan's unaffected closing share price of $116.63 on April 10, 2014 (see page 101 for unaffected price chart), the final trading day before Pershing Square started to rapidly accumulate shares Transaction multiple 10.6x EV/LTM Revenue 30.3x EV
Slide 49: Certainty, adequacy and board response
Certainty of the offer Adequacy of the offer Appropriateness of the board’s response Partnership with Pershing Square and action to date indicate Valeant is a serious buyer No financing contingency; Tender offer launched; Sale of assets to comply in advance with likely HSR issues; Initiated HSR revi
Slide 50: Overlap of Allergan and Valeant shareholders
The large percentage of Allergan shareholders who also own Valeant stock reflects their confidence in Valeant’s currency “We believe this deal will eventually go to AGN shareholders, who are interested in maximizing value. Given the reported over 50% overlap in VRX/AGN shareholders, we believe that
Slide 51: Analyst recommendations on Valeant stock
Median analyst price target of $168 per share represents a 39% premium to Valeant’s current share price Research Analysts’ Recommendations Suggest that Valeant’s Stock is Undervalued Source: Bloomberg. Note: Most recent recommendations and price targets as of July 14, 2014. Broker Price Target Rec.
Slide 52: Goldman Sachs was bullish on Valeant before advising Allergan
As noted in Allergan’s recent 14D-9, Goldman Sachs has underwritten $22.35 billion of equity and debt offerings for Valeant Twelve days before Valeant’s initial offer for Allergan, Goldman Sachs published a final research report on Valeant, with a Buy rating, a $164 price target, and placement on th
Slide 53: Analysts are confident in Valeant's operating model
“We believe that Valeant is in a strong position, both with respect to its base business and relative to the strategic growth opportunity that exists across the Pharmaceutical industry” “The CEO’s extensive management consulting experience may provide unique insight into how to best avoid mistakes m
Slide 54: Analysts on Valeant's business model
“Whether the acquisition happens or not, however, we believe that the Valeant business model remains valid and we do not believe that Allergan management’s allegations regarding Valeant’s strategy are valid.” “We don’t think that Valeant promotionally starves its brands, but rather makes selective i
Slide 55: Analysts on synergy targets
“75% believe Valeant’s $2.7 Bn synergy target for a potential AGN acquisition is realistic.” “We see the opportunity for significant cost synergies with this deal given the overlap in the VRX and AGN businesses and the possibility of tax savings given VRX's mid-single digit corporate tax rate.” “Med
Slide 56: Pershing Square's all-equity commitment
(1) Measured as of May 30 th , 2014, other shareholders were offered an exchange ratio of 1.38 VRX shares per one AGN share. This ratio assumes AGN shareholders reinvested their cash consideration in VRX stock at the then current market price of $131 per share. (2) ~$600mm is measured as of May 30,
Slide 57: Risks in Allergan's Business Model
Risks in Allergan’s Business Model Highly concentrated product portfolio Large exposure to upcoming patent expirations Large price increases have significantly contributed to revenue growth Limited to any disclosure about early-stage R&D
Slide 58: Top four drugs account for 64% of revenue
Allergan’s top four drugs account for 64% of total revenue Botox 32% Restasis 16% Other Products 36% Highly Concentrated Portfolio Source: Sales for top drugs per Valeant management estimates. Total AGN sales per consensus estimates as of June 19, 2014. Lumigan Franchise 9% Alphagan Franchise 7%
Slide 59: Exposure to patent cliffs
Allergan is currently benefiting from a window of patent exclusivity, but by 2027 Allergan will lose exclusivity on products comprising ~37% of current revenue High Exposure to Patent Cliffs Products maintaining exclusivity or durability (currently marketed products only, shown as a % of 2014E reven
Slide 60: Allergan loses Latisse patent fight
Allergan loses Latisse patent fight, jeopardizing up to $200M in sales “The U.S. Court of Appeals for the Federal Circuit in Washington has deemed a pair of Latisse patents invalid, paving the way for Novartis' Sandoz unit and the generics maker Apotex to sell their copies. The patents on Latisse--a
Slide 61: Patent cliffs plus concentration equals high risk
In 2013, Allergan’s stock fell by 19% within one week, in large part due to increased risk of loss of exclusivity for Restasis, one of Allergan’s largest products Patent Cliffs + Concentration = High Risk 6/20/13: FDA issues guidance on Restasis generic pathway Source: Bloomberg. Share Price Perform
Slide 62: Pricing has driven growth
Allergan has relied on large price increases to drive revenue growth, both historically and in 2014 7-9% Price Increases in 2014 10%+ Price Increases in 2014 100%+ Price Increases in 2014 Acuvail Elestat Lastacraft Betagan Zymaxid Pricing has Driven Growth Alphagan Combigan Lumigan Restasis Aczone T
Slide 63: Valeant's portfolio is more durable and diversified
Valeant’s portfolio is both more durable and more diversified Durability Product Concentration 60% 85% 64% 18% Allergan Durable % of Portfolio Valeant Durable % of Portfolio Allergan Top 4 Products Valeant Top 10 Products Valeant has a Lower Risk Product Portfolio Source: Valeant management estimate
Slide 64: Combination reduces portfolio risk
The combined drug portfolio is expected to be more durable and more diversified Durability Product Concentration: Top 4 Drugs % of Total Sales 60% 74% 64% 29% Standalone Allergan PF Allergan + Valeant Standalone Allergan PF Allergan + Valeant Source: Valeant management estimates. More durable More d
Slide 65: Allergan's black box R&D model
Allergan’s Black Box R&D Model No project-level expense guidance No guidance on expected returns from R&D investment Limited visibility of R&D creates uncertainty History of losses outside of low-risk projects Compensation program promotes R&D spending without providing accountability for return on
Slide 66: No guidance on increased R&D spending
Despite a major forecasted increase in R&D spending, Allergan has not provided guidance on major areas of increased expenditure and the expected return on investment “Also, as a quick reminder, I have explained on several occasions that in the coming five or so years, there will be a major step-up i
Slide 67: Limited project-level R&D guidance
While the sales potential from Allergan’s R&D pipeline remains opaque, peers such as Astra Zeneca give more detailed disclosure: Limited Project Level R&D Guidance Source: Astra Zeneca May 2014 investor presentation.
Slide 68: Limited visibility of R&D creates uncertainty
“Given you had to set back both these expectations of products [Latisse for Scalp and DARPin] since you talked about last year at your R&D day. How should we think about your commitment to this growth and are you going to have to look elsewhere to drive this? Or are you still confident that you can
Slide 69: DARPin experience shows R&D risk
Allergan’s experience with DARPin demonstrates lack of visibility and risk inherent in an early stage R&D model “Scott, I don't mean to beat a dead horse, but if you could just provide us a little bit more color on what the magnitude of the benefit you saw over LUCENTIS. You said you did see that in
Slide 70: History of losses outside low-risk projects
History of Losses Outside of Low-Risk Projects Source: Valeant April 2014 investor presentation.
Slide 71: History of losses outside low-risk projects
Source: Valeant April 2014 investor presentation. History of Losses Outside of Low-Risk Projects
Slide 72: Poorly designed R&D reinvestment compensation target
Poorly Designed R&D Reinvestment Compensation Target Incentives Matter David Pyott is eligible to receive a bonus up to 25% of his base salary if the company exceeds its annual R&D spending target The R&D target rewards Allergan executives for R&D spending irrespective of the returns on that investm
Slide 73: June 30th pipeline update highlighted flawed R&D strategy
Despite spending $1.3 billion on product acquisitions and $2.8 billion on R&D over the last three years, it remains unclear whether Allergan has any late-stage programs capable of moving the needle Allergan’s June 30th Pipeline Update Highlighted Flawed R&D Strategy And Misunderstanding of Evolving
Slide 74: Crowded competitive landscape for DARPin
AGN 150998 (Anti-VEGF DARPin) Allergan/ Molecular Partners Phase 2b Pan anti-VEGF DARPin No 2.0mg dose: +8.2 letters at 16 weeks 1.0mg dose: +6.3 letters at 16 weeks (vs +5.3 letters w/ Lucentis) Doses at the start of trial and after 4 and 8 weeks (vs additional doses after 12 and 16 weeks w/ Lucent
Slide 75: Allergan's History of Poor Cost Management
VI. Allergan’s History of Poor Cost Management XXXXXXXX
Slide 76: Allergan's SG&A well above peers
Allergan’s SG&A spending is well above other specialty and global pharmaceutical companies SG&A Expense as % of Total Revenue (2013) Avg. (ex-AGN) = 26.2% Over 800 bps above next highest peer and over 1,200 bps above peer average Source: Company filings, Pershing Square estimates. Allergan’s Elevate
Slide 77: Analyst questions on SG&A reduction
“You've talked about bringing your SG&A down to 35% over the last couple of years. But [I] understand why you are spending as much as you did in terms of SG&A, but are you still thinking of taking the SG&A amount down to 35%? And what do you mean by medium-term and near- term because it's been four
Slide 78: Management statements on SG&A ratio
“Maybe a last comment on SG&A, we’ve said for some time now, we expect this to gradually trend down into the mid-30s. As a company, we’ve historically been very high.” “Going back to SG&A leverage, we've always stated that our target in the midterm is the mid-30s, so I'd reiterate that. And clearly,
Slide 79: Management admitted SG&A is high
“I think this will be more a case of evolution versus revolution.” “And one more big-picture question, I guess, for David. You talked a little bit about going to SG&A levels of sort of 35% over time, anything structurally that you're planning for next year?” “You're quite right that we've had very h
Slide 80: Allergan's Poor Track Record of Allocating Capital
VII. Allergan’s Poor Track Record of Allocating Capital
Slide 81: Poor track record of allocating capital
Allergan has a Poor Track Record of Allocating Capital Flawed capital allocation framework Questionable business development track record Excess cash balances
Slide 82: Analysts question capital allocation strategy
“For David and for Jeff, what's your philosophy on having a net cash position and whether you think that's ideal?” “Can management better serve investors by maybe being more aggressive with cash deployment and maybe even taking advantage of some of these lower rates near term?” “My question is with
Slide 83: Acquisition interest motivated by growth for growth's sake
“I was wondering though if you and the board are open to deals that create economic value and add to franchise value even if they don't meet that [10%] revenue growth threshold?” Allergan’s interest in acquisitions seems to be motivated by growth for growth’s sake rather than shareholder value creat
Slide 84: Flawed capital allocation framework: share buybacks
“Well, maybe ending with the easiest part. On share repurchase, over a long period of time, our goal has been to hold the share count roughly flat. We'll go up and down at the margin quarter-to-quarter, so the treasury is on the other side, if you like of the dilution caused by employees appropriate
Slide 85: Management highlights M&A and business development
“And I think you as investors would prefer that we find good-return assets like that versus the very modest levels of return we can get by investing in the capital markets where, obviously, right now, the returns are very, very low indeed.” “We have sufficient liquidity on our balance sheet that ena
Slide 86: Allergan unable to identify attractive acquisition targets
“It would seem obvious to many of us that you should be hoping or seeking to leverage your balance sheet more aggressively. But when we talked to investors, some argue that there aren't actually many assets available in your therapeutic categories or in aesthetic and derm. So it's an issue that you'
Slide 87: Acquisition track record: Inamed
Allergan sold nearly a third of the largest business it ever acquired for 3.3% of the aggregate purchase price Allergan’s Acquisition Track Record is Questionable – Inamed In 2005, Allergan acquired Inamed Corporation for $3.3 billion At the time of the acquisition, the obesity intervention business
Slide 88: Acquisition track record: Sanctura
Three years after Allergan acquired Sanctura, the company recorded an impairment charge equal to the entire $371 million purchase price Allergan’s Acquisition Track Record is Questionable – Sanctura Franchise In September 2007, Allergan acquired Esprit Pharma, whose only major product line was the S
Slide 89: Acquisition track record: MAP Pharmaceuticals (Levadex)
Forty-six days after Allergan spent $872 million to acquire Levadex, the FDA rejected Allergan’s second request to market the drug (1) Based on Allergan management estimate of peak-year sales of $500 million. Allergan’s Acquisition Track Record is Questionable – MAP Pharmaceuticals (Levadex) In Janu
Slide 90: Management took inappropriate risk buying MAP
“And then David and Scott, I assume that Allergan is very confident in the provability of the product on taxpayers sooner but can you talk maybe more broadly how you -- or specifically, how you protected shareholders of Allergan in the event of an undesired FDA outcome?” “I think on my side, if I lo
Slide 91: Largest acquisitions have all disappointed
The largest acquisitions of Pyott’s tenure have all disappointed Allergan’s Largest Acquisitions, Using ~$5 Billion of Capital, Have All Disappointed Semprana (Levadex) 3/23/06 99.6% of purchase price written off as impairment charge 80% of net book value written off Three FDA CRLs and resulting mul
Slide 92: Allergan's Shareholder Unfriendly Compensation Policies
VIII. Allergan’s Shareholder Unfriendly Compensation Policies
Slide 93: Allergan's poorly designed executive compensation program
Allergan’s Poorly Designed Executive Compensation Program Based on ISS executive compensation analysis, only 13% of David Pyott’s total compensation in 2013 was tied to performance ISS recently cautioned that the CEO’s level of long-term incentive compensation was high relative to peers and was not
Slide 94: Inadequate TSR trigger and time-vested options
Inadequate TSR Trigger (on one-time grants) Time-Vested Stock Options In 2012, CEO Pyott was granted 165,000 restricted stock units to “recognize over a decade of outstanding performance” To achieve maximum vesting, total shareholder return must be 9% over a five year period 9% is below the 10% mini
Slide 95: Options granted months before revised guidance
Management’s 2014 options grant was struck at an Allergan share price of $124 in February 2014, three months before management chose to announce its revised guidance Allergan Management was Granted Options only Months before Revised Guidance was Announced This implies one of the following: Managemen
Slide 96: Revised long-term plan but not compensation policy
Notably, management has not tied long-term compensation to the new long-term financial plan Annualized TSR (IRR) % of PSUs vesting Valeant is “all in” on aligning compensation with performance – we challenge Allergan to do the same Annual Cash Incentive Compensation Up to 200% of base salary possibl
Slide 97: Significant Downside to Allergan's Standalone Stock Price
IX. We Believe There is Significant Downside to Allergan’s Standalone Stock Price
Slide 98: 30% downside to unaffected share price
Allergan’s unaffected share price is $116.63, the closing price on April 10 th , the day before Pershing Square began its rapid accumulation program Date Range ADTV Allergan share price and volume from 2/25/2014 to 7/14/2014 30% Downside to AGN Shares if they Revert to the Unaffected Share Price Not
Slide 99: High trading volume since initial Valeant bid
Since Valeant’s initial bid, trading in AGN shares has exceeded 88% of the company’s float High Trading Volume Since Initial Valeant Bid April 22: Initial VRX proposal May 28: Second VRX proposal May 30: Third VRX proposal Source: Bloomberg, company filings. Note: % of float traded excludes shares o
Slide 100: Recent sellers include long-term investors
We believe that recent sellers of AGN shares include long-term investors who fear that Allergan’s board and management will not act to maximize shareholder value 88% (1) of Allergan’s float has changed hands since the initial VRX bid, likely indicating that many long-term AGN investors have sold sha
Slide 101: Insiders sold shares at prices below current offer
$76mm $12mm $27mm $53mm $56mm $65mm $21mm $15mm $76mm $12mm 1,054K Shares 338K Shares 622K Shares 156K Shares 623K Shares 176K Shares 628K Shares 689K Shares 192K Shares 108K Shares $172.50 (1) Look-Through Price Source: FactSet. (1) As of July 14, 2014. Includes 252k shares sold by David Pyott at $
Slide 102: Allergan executives less bullish prior to offer
Allergan executives clearly had a far less bullish view of their stock prior to the Valeant offer $138.0 $49.7 $75.8 $81.3 $192.9 $62.8 $70.8 $19.8 $298.1 $70.5 $170.0 $27.1 $87.2 $90.1 $31.6 $40.6 Source: FactSet, 2013 – Q1 2014. Note: Market cap based on basic shares outstanding. (1) Market cap as
Slide 103: Allergan's revised long-term financial plan
On May 12 th , in reaction to Valeant’s April 22 nd bid, Allergan management announced a new revised long- term plan We question the credibility and value creation potential of this long-term plan Allergan’s Revised Long-Term Financial Plan
Slide 104: Revenue guidance has not materially changed
“And [on] many occasions, I've talked about our midterm growth aspirations being around about 10% sales growth…” “Beyond 2015, we believe we'll grow revenue at the double digits…” Higher Guidance Appears Driven by the Valeant Bid, not a Fundamental Change in the Business David Pyott, Allergan Chairm
Slide 105: Source of improved SG&A ratio unclear
“Going back to SG&A leverage, we've always stated that our target in the midterm is the mid-30s, so I’d reiterate that.” “Now we're really cranking this in terms of [SG&A] leverage. And by the end of this period, it will get to the mid- to the high-20s.” David Pyott, Allergan Chairman and CEO; Q4 20
Slide 106: What changed besides the Valeant proposal
“Regarding the full year 2014, Allergan estimates… growth of between 12% and 15%, which is consistent with our aspiration of mid- teens EPS growth.” “…[we believe] we can achieve EPS growth of 20% on a compound annual basis over the next five years.” If Allergan were being conservative about the fun
Slide 107: Guidance appears driven by Valeant bid
“Our goal now is to give them most of what they want…We will raise earnings guidance further.” Why is this the goal “now”? How does raising guidance increase shareholder value? David Pyott, Allergan Chairman and CEO; June rd , - Pyott as quoted by Reuters at the BIO International Convention; emphasi
Slide 108: Analyst price target increases not supported by revised plan
Certain analysts have increased their near-term price targets by up to 67% based on a 24% increase in EPS five years from now Management’s increased guidance from a 15% EPS CAGR to a 20% EPS CAGR implies a 24% increase in 2019 EPS +44% +57% +67% +44% +47% Source: Allergan June 10, 2014 investor pres
Slide 109: Analysts question Allergan's standalone value
“Allergan asserts that its current 26.8x P/E multiple is ‘Due to Accelerated EPS Outlook from Mid-teens to Revised Guidance of 20% Five-Year EPS CAGR,’ essentially saying that there is no take- out premium in AGN stock related to the VRX offer. Given the stock’s reaction following Valeant’s offers,
Slide 110: Thoughts on Allergan's valuation multiple
Thoughts on Allergan’s Valuation Multiple Some analysts have taken Allergan’s revised guidance and applied AGN’s historical average P/E multiple of 22x (1) to arrive at a target price. We believe this analysis is materially flawed We believe AGN’s historic multiple priced in several opportunities th
Slide 111: Credibility of revised long-term plan
Allergan’s history of poor cost management and poorly designed management incentives should make investors question the credibility of the revised or any re-revised long-term plan
Slide 112: Expected re-revised Allergan operating plan
The Expected, Re-Revised Allergan Operating Plan Allergan’s management has indicated they will re-revise their long-term guidance at the time of their Q2 earnings announcement The re-revised plan is reactive both to the Valeant proposal and to shareholder’s disappointment with the initial revised pl
Slide 113: Allergan's stated priorities for cash deployment
“We listened carefully to investors’ perspectives and heard that they would like to see us harnessing this financial strength to create even more stockholder value by, among other suggestions, either purchasing growth-oriented companies or technologies that fit our strategy and operating model, and/
Slide 114: Why is now the right time for a large acquisition?
Why is Now the Right Time to Make a Large Acquisition? We are extremely skeptical that Allergan shareholders would be better off paying a premium for another company than receiving a 50%+ premium in a highly strategic merger Given Allergan’s poor M&A history, we expect shareholders will discount the
Slide 115: Management considering a leveraged buyback
“Pyott has met with investors to talk about the company’s defense, which he said could include issuing new debt to buy back shares. He said Allergan could borrow up to $10 billion without affecting its investment-grade rating, but he did not say how much the company might spend on the buybacks.” Sou
Slide 116: Large buyback at elevated price would be value-destructive
Allergan has indicated that the company is contemplating a leveraged buyback of up to $10 billion , compared to a total buyback of $2.4 billion from 2011 to Q1 2014 Allergan’s stock is currently trading at 29x 2014E earnings per share, vs. 18x for its peers (2) Represents 24% premium over 12-month m
Slide 117: Allergan share buyback too little, too late
Why didn’t Allergan buy back stock at $80-90 per share last year? $648 Source: Company filings and Factset. Allergan Share Buyback – Too Little, Too Late Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 3 year average price: $91.80 July 14 closing price: $167.02 Amount repurchased Stock price 82% premium $0.0
Slide 118: Pyott comments at BIO convention
“Pyott said other drugmakers at the San Diego convention ‘understand that if we were to succumb to this, then somebody even bigger is next on the menu, or at least a lot of them will be afternoon snacks.’” Is David Pyott more concerned about protecting shareholder interests or preserving the privile
Slide 119: Q&A and D.F. King contact
We encourage shareholders considering supporting the Pershing Square special meeting consent solicitation to contact D.F. King, our proxy solicitor, with any questions about the process: Ed McCarthy D.F. King (212) 269-5550 emccarthy@dfking.com Q&A
Slide 120: Proposed Nominees
ADVANCING ALLERGAN Proposed Nominees READ ANNOUNCEMENT HOME WEBCAST NOMINEES SHAREHOLDER MATERIALS NEWS RELEASES PROPOSED BY-LAWS Betsy Atkins Chief Executive Officer of Baja LLC Betsy Atkins is a business executive and entrepreneur with substantial public company board experience known for her earl
Slide 121: Betsy Atkins
ADVANCING ALLERGAN HOME WEBCAST NOMINEES SHAREHOLDER MATERIALS NEWS RELEASES PROPOSED BY-LAWS MEDIA CONTACTS « Back to Proposed Nominees Betsy Atkins Chief Executive Officer of Baja LLC Betsy Atkins, 61, has been the Chief Executive Officer of Baja LLC, an independent venture capital firm focused on
Slide 122: Cathleen P. Black
ADVANCING ALLERGAN HOME WEBCAST NOMINEES SHAREHOLDER MATERIALS NEWS RELEASES PROPOSED BY-LAWS MEDIA CONTACTS « Back to Proposed Nominees Cathleen P. Black Senior Advisor at RRE Ventures LLC Cathleen P. Black, 70, has served as a Senior Advisor at RRE Ventures LLC, an early stage venture capital firm
Slide 123: Fredric N. Eshelman
ADVANCING ALLERGAN HOME WEBCAST NOMINEES SHAREHOLDER MATERIALS NEWS RELEASES PROPOSED BY-LAWS MEDIA CONTACTS « Back to Proposed Nominees Fredric N. Eshelman Principal at Eshelman Ventures, LLC Fredric N. Eshelman, 65, is a principal at Eshelman Ventures, LLC, which is a fund that invests primarily i
Slide 124: Steven J. Shulman
ADVANCING ALLERGAN HOME WEBCAST NOMINEES SHAREHOLDER MATERIALS NEWS RELEASES PROPOSED BY-LAWS MEDIA CONTACTS « Back to Proposed Nominees Steven J. Shulman Managing Director of Shulman Ventures Inc. Steven J. Shulman, 63, serves as the Managing Director of Shulman Ventures Inc., a private equity inve
Slide 125: David A. Wilson
ADVANCING ALLERGAN HOME WEBCAST NOMINEES SHAREHOLDER MATERIALS NEWS RELEASES PROPOSED BY-LAWS MEDIA CONTACTS « Back to Proposed Nominees David A. Wilson Former President and Chief Executive Officer of the Graduate Management Admission Council David A. Wilson, 73, is the former President and Chief Ex
Slide 126: John J. Zillmer
ADVANCING ALLERGAN HOME WEBCAST NOMINEES SHAREHOLDER MATERIALS NEWS RELEASES PROPOSED BY-LAWS MEDIA CONTACTS « Back to Proposed Nominees John J. Zillmer John J. Zillmer, 58, is the former Executive Chairman of Univar, Inc., a leading global distributor of industrial and specialty chemicals and relat
Slide 127: How to call a special meeting: shareholders
ADVANCING ALLERGAN HOME WEBCAST NOMINEES SHAREHOLDER MATERIALS NEWS RELEASES PROPOSED BY-LAWS MEDIA CONTACTS How To Call A Special Meeting – Shareholders First, you should either transfer or purchase at least one share of Allergan common stock and deposit in record name on books of Allergan’s transf
Slide 128: How to call a special meeting: DTC participant
ADVANCING ALLERGAN HOME WEBCAST NOMINEES SHAREHOLDER MATERIALS NEWS RELEASES PROPOSED BY-LAWS MEDIA CONTACTS How To Call A Special Meeting – DTC participant First, once a DTC Participant is contracted by an Allegan shareholder, the DTC Participant should: Instruct DTC to cause Cede & Co., as nominee
Slide 129: Shareholder materials
ADVANCING ALLERGAN http://advancingallergan.com/ Home Webcast Nominees Shareholder Materials News Releases Proposed By-Laws Media Contacts Shareholder Materials Forms To Complete To Become a Proposing Person And Call A Special Meeting of Shareholders Solicitation Statement Request Form to Call a Spe
Slide 130: News releases
ADVANCING ALLERGAN Home Webcast Nominees Shareholder Materials News Releases Proposed By-Laws Media Contacts July 11, 2014 PERSHING SQUARE FILES DEFINITIVE SOLICITATION STATEMENT July 7, 2014 Pershing Square Announces Director Slate For Allergan Board June 27, 2014 Pershing Square enters into a sett
Slide 131: Frequently asked questions
ADVANCING ALLERGAN Home Webcast Nominees Shareholder Materials News Releases Proposed By-Laws Media Contacts Frequently Asked Questions Why is Pershing Square asking shareholders to call a special meeting? What are you asking me to do? What Steps Must an Allergan Shareholder Take to Help Request a S
Slide 132: What are you asking me to do?
What are you asking me to do? We are asking you to (1) either transfer or purchase at least one share of Allergan common stock and register in your name on the books of Allergan’s transfer agent, Wells Fargo Bank, (2) complete, sign and date your Special Meeting Request Form, (3) complete, sign and
Slide 133: Record date and shares needed for special meeting
D.F. King & Co., Inc. 48 Wall Street New York, NY 10005 Toll-free: (800) 859-8511 Banks and brokers: (212) 269-5550 Back to top What is the record date for the calling of a special meeting? The record date for determining shareholders entitled to notice of, and to vote at, the special meeting has no
Slide 134: Are you asking me to remove any directors?
Back to top Are you asking me to remove any Allergan directors? Pershing Square is seeking to remove six of Allergan’s current directors and requesting that the Allergan board elect or appoint six new directors. Allergan shareholders may vote for, against or abstain from voting on any of the proposa
Slide 135: Timeline
ADVANCING ALLERGAN HOME WEBCAST NOMINEES SHAREHOLDER MATERIALS NEWS RELEASES PROPOSED BY-LAWS MEDIA CONTACTS Timeline VALEANT AND PERSHING SQUARE ANNOUNCE BID TO ACQUIRE ALLERGAN Valeant and Pershing Square announce bid to acquire Allergan ($48.3 + 0.83 share of VRX) Pershing Square’s Presentation.
Slide 136: Timeline: offer increase to $180.90 per share
VALEANT INCREASES ITS OFFER TO ACQUIRE ALLERGAN TO $180.90/ SHARE Valeant increases its offer to acquire Allergan by increasing the cash component to $72 per shares. New offer prompted by PSCM based on shareholder feedback, which agrees to take all VRX stock (and no cash) for its AGN shares at a fix
Slide 137: Timeline: exchange offer and settlement
June 17, 2014 VALEANT HOSTS WEBINAR Valeant hosts webinar to respond to misleading facts made by Allergan June 18, 2014 VALEANT LAUNCHES EXCHANGE OFFER Valeant launches exchange offer for Allergan. June 19, 2014 DELAWARE COURT OF CHANCERY RULES IN FAVOR OF EXPEDITING PERSHING SQUARE’S REQUEST Delawa
Slide 138: Timeline: director slate and solicitation statement
July 7, 2014 PERSHING SQUARE ANNOUNCES DIRECTOR SLATE FOR ALLERGAN BOARD Pershing Square announces a state of six independent directors for the board of Allergan. The six members of the state are: Betsy Atkins, Cathleen P. Black, Fredric N. Eshelman, Steven J. Shulman, David A. Wilson and John J. Zi
Slide 139: Media Contacts
ADVANCING ALLERGAN HOME WEBCAST NOMINEES SHAREHOLDER MATERIALS NEWS RELEASES PROPOSED BY-LAWS MEDIA CONTACTS Media Contacts CAROLYN SARGENT Rubenstein Associates 212 843-8030 (M) 917 838-8514 csargent@rubenstein.com STEVE MURRAY Rubenstein Associates 212 843 8293 (M) 631 697 5621 smurray@rubenstein.
Slide 140: Legal Notice, Disclaimer and Forward-Looking Information
HOME WEBCAST NOMINEES SHAREHOLDER MATERIALS NEWS RELEASES PROPOSED BY-LAWS MEDIA CONTACTS Disclaimer LEGAL NOTICE, DISCLAIMER AND FORWARD-LOOKING INFORMATION This website is provided by Pershing Square Capital Management, L.P. and certain of its affiliates (collectively “Pershing Square”, “we” or “o
Valeant Pharmaceuticals International — Proxy Contest (July 2014) on 6ix