Donald van Deventer • Dec. 10, 2014
Allergan Leads The 20 Best Value Bond Trades With A Maturity Of 1 Year Or MoreDonald van Deventer • Dec. 10, 2014
- On December 8, there were 17,784 bond trades in 3,123 fixed rate corporate bond issues of 982 issues with underlying principal of $5.7 billion.
- We rank the heavily traded issues from best to worst using the ratio of credit spread to matched maturity default probability as our "best value" measure.
- Allergan Inc. leads the ranking with a spread to default probability ratio of more than 300 times.
Actavis-Allergan Accretion/Dilution Analysis: Double-Digit Accretion In 2015
- Actavis' acquisition of Allergan will be accretive to EPS by 11% by the end of 2015.
- The deal will yield over $1.8B in synergies, mostly in the first 12 months post acquisition.
- The combined company will be one of the most dynamic in growth pharmaceuticals.
Winners And Losers In The Allergan Valeant Actavis Melee; Also, Will Bill Ackman Lose His Profit?
- Actavis gets a major status upgrade. Allergan's CEO has been vindicated. As I had said, Actavis and Allergan have a lot of top shareholders in common, not Valeant.
- Ackman might lose his $2.2 billion profit from Allergan. Article has relevant excerpt from the preliminary injunction verdict.
- Even with Allergan at $219, Valeant's enterprise value is almost the same as Allergan.
- Allergan has 88% gross margin. Valeant's gross margin is just 75%. When we multiply their respective revenues by their gross margins, Allergan has greater net revenue.
- Valeant might find it tough to regain credibility; everybody now knows Valeant makes lowball offers.
- AGN is suitable for Enterprising Investors following the ModernGraham approach.
- According to the ModernGraham valuation model, the company is overvalued at the present time.
- The market is implying 19.3% earnings growth over the next 7-10 years, a rate unsupported by the company's recent earnings performance.
Digging Deeper Into Valeant's Organic Growth Claims
- Three of Valeant's top 5 products are ancient, tail products that reported a combined 144% annualized growth rate due to price hikes (25% growth in Q3 over Q2).
- My ballpark calculations show that Valeant's 2016 EPS claims for Allergan shareholders are not realistic.
- Valeant again did not reveal revenue from recent acquisitions or how much of organic growth came from "day 1" price hikes on recently acquired products.
- Fidelity endorses Allergan and questions value of Valeant's stock.
Thoughts On The Allergan Actavis Valeant Frenzy
- Actavis also wants to acquire Allergan.
- Allergan seems more open to Actavis.
- Actavis has a lot of shareholders in common with Allergan.
- My own opinion is that Allergan should stay independent. I don't see how exchanging top-class assets for inferior assets would increase anyone's wealth.
Can Valeant's Glaucoma Drug Peak Sales Be Much Lower Than Claimed?
- Valeant's Phase 3 trial results compared its latanoprostene bunod with the generic timolol. There is no proof it is better than the market-leading prostaglandin analogs because it wasn't compared.
- Prostaglandin analogs such as latanoprost, bimatoprost, travoprost are well-established drugs known to be more effective than timolol. They have been around for many years.
- Valeant claims its latanoprostene bunod (Vesneo) will get peak sales of $500 million to $1 billion. Valeant did not compare Vesneo to any prostaglandin analog in the clinical trial.
- Peak sales estimates by pharma companies are simple and unscientific. They can be off by a huge factor.
- How would Valeant's drug achieve such a high peak sales number when as effective or more effective drugs have gone generic?
Update: Valeant's Q3 Shocker Devoid Of Details; Allergan Claims It Will Win In The Special Meeting And Looks Forward To It
- Allergan says shareholders who voted for the special meeting won't remove directors. This is what Allergan heard from shareholders.
- Valeant spiked today due to its Q3 forecast that is devoid of details. Did Valeant get higher "organic growth" with one-time price hikes on recent acquisitions?
- By hiking Q3 forecast without any details, with just 5 trading days left before the Q3 close, Valeant has bailed out its shareholders. Great way to bang the close.
- Pearson had said in the Q4 earnings call that he saw significant pricing opportunity on day 1 in the Precision Dermatology acquisition (closed on July 8).
- Valeant's organic same store sales growth was 0% in 2013, 1% in Q1, 2.4% in Q2. B&L stayed at 10% throughout. How does Q3 get to 15%?
Allergan And Valeant: Lessons From The Go-Go Years
- Warren Buffett recommended Business Adventures by John Brooks as the best business book, when Bill Gates asked Buffett to recommend the best.
- John Brooks is Gates's favorite business writer. Brooks has also written "The Go-Go Years", this book is the most famous of Brooks's books.
- The book has a great chapter on acquisitions and creative accounting. This is the milieu in which the Williams Act came into being.
- Those who don't learn from history are condemned to repeat it. Similarities between investor behavior regarding conglomerates of the 1960s and the current investor adoration for serial acquirers is astonishing.
Misleading Statements In The Ruane, Cunniff, Goldfarb Annual Meeting Transcript Regarding Valeant And Allergan
- Valeant's largest shareholder's fate has become inextricably intertwined with Valeant. Valeant is 23% of their portfolio and they own 10% of Valeant. They can't exit without ruining their returns.
- This led to a highly desperate defense at the Ruane, Cunniff, Goldfarb annual meeting.
- Article discusses why Pearson is no "Outsider".
- Several inaccurate and misleading statements on Valeant and Allergan from the transcript are pointed out.
- Goldfarb revealed that Valeant's debt resides in the US. Treasury is targeting this tax trick in its regulations that don't require Congress - expect Valeant to take a major hit.
How Valeant Continues To Hide Important Financial Data From Investors That Other Pharmas Disclose
- Valeant has repeatedly stonewalled analysts and investors when it comes to pricing information.
- Despite all the pressure from Allergan and investors to disclose pricing information, Valeant has refused with ridiculous excuses.
- I suspect if Valeant reveals its price increases like other pharmas do, it will show everyone how Ponzi-like Valeant's business model is.
- Other Canadian companies have a much higher tax rate (> 20%) than Valeant. Nobody knows how Valeant can claim a tax rate of less than 5%.
- Eugene Melnyk, the former CEO of Biovail, has become a whistleblower on Valeant's tax rate tricks. This whistleblowing has caused the IRS to begin an investigation of Valeant's tax apparatus.
Update: Allergan Might Acquire Salix Pharmaceuticals Or Someone Else
- Allergan might acquire Salix according to "people familiar with the matter". Allergan might possibly get a tax inversion by buying Salix. Or it could make it all-cash without an inversion.
- Valeant's tender fiasco means that Allergan shareholders should approve any deal. Despite Valeant's aggressive claims, just 4% of Allergan shares were tendered in two months.
- Chairman of Salix is 70 years old and the CEO and President is 65. This is a great way for them to retire.
- Salix went up 15% today due to the acquisition rumor. It is not certain that Salix is the one Allergan will acquire.
- The WSJ article (i.e. "people familiar with the matter") also says Allergan might acquire "another unknown party" if not Salix.
Update: Valeant's Tender Offer For Allergan - Just 4% Of Shares Tendered In Dismal Failure
- Allergan shareholder support for Valeant is below even my expectations. Must be extremely disappointing for Valeant.
- Just 12.5 million shares tendered out of the 298 million Allergan shares outstanding. That is just 4.2%.
- Pershing Square continues to struggle to gather enough votes for the special meeting, blames it on documentation requirements.
- 13-F filings show very little Allergan purchased by hedge funds in Q2.
Allergan Will Create More Value For Shareholders By Remaining IndependentKanak Kanti De • Aug. 10, 2014
- Since April, Allergan and Valeant Pharmaceuticals have been locked in a takeover battle.
- Valeant is also backed by activist investor Bill Ackman and his Pershing Square hedge fund.
- Ackman is also the biggest shareholder of Allergan.
- Given the fact that Valeant is highly leveraged, it is best for Allergan to remain independent.
Juicy Details From The Allergan Lawsuit: Why Valeant And Ackman May Be In More Trouble Than They Are Letting On
- The 50-page lawsuit is the most entertaining document I have read so far in the entire Allergan-Valeant-Ackman affair. It has a blow-by-blow account that reads like a thriller.
- The lawsuit says that to escape securities laws Ackman and Valeant pretend to be one single entity and pretend that Ackman is a co-acquirer with Valeant.
- But Ackman in open letters and TV appearances calls himself an Allergan shareholder instead of acquirer. Valeant itself denies control of the 9.7% to escape Allergan's articles of incorporation.
- I believe the Williams Act and securities laws were made to prevent the transfer of wealth from unsuspecting shareholders to people with material nonpublic information ("unfair disparities in market information").
- I think such a transfer of wealth is precisely what happened when Pershing Square made more than a $1 billion profit in no time. Can they get away with it?
Update: Looks Like Bill Ackman Does Not Have Enough Allergan Shareholder Votes
- The last two days saw SEC filings by Allergan and Pershing Square. The SEC filings are regarding Pershing Square's complaints to proxy advisory firms about the Allergan special meeting bylaws.
- If Pershing Square has to struggle to gather just 25% of shareholder votes for the special meeting, how will it get 50% to win?
- I had suggested in my previous article that Ackman and Valeant did not have enough shareholder support. These complaints confirm my suspicion that they are struggling to get the votes.
Ominous Signs For Valeant In The Allergan Q2 Earnings Call
- Allergan's CEO looks set to make an acquisition. I haven't seen him this open-minded and aggressive about acquisitions before. He is confident of making his moves before any special meeting.
- EPS benefit from any acquisition made by Allergan would have twice the effect compared to a deal with Valeant, because Allergan's cash-rich balance sheet won't be shared with Valeant shareholders.
- Allergan's cuts and improved EPS are facts. Valeant's synergy hypotheses are just vague opinions. Valeant has managed to avoid describing exactly what it would cut - both R&D and SG&A.
- Valeant has repeatedly said it is confident the deal will happen. If the deal doesn't happen, any investors who buy into Valeant based on such assurances will be sorely disappointed.
- Because Valeant's proposal would have Allergan shareholders owning just 44% of the combined company, Valeant would have to more than double any move Allergan makes. Therefore this deal won't happen.
What The SEC Should Ask Valeant; Allergan Investors Should Watch Out
- Valeant complained to the SEC about Allergan's "misstatements" on B&L organic growth. The SEC should take this opportunity to examine Valeant's earnings releases and ask the following from Valeant.
- Clearly report the negative organic growth from acquisitions older than a year. Valeant trumpets B&L organic growth even though the B&L acquisition closed in August 2013.
- Report organic growth on a consistent same-store sales basis. Valeant until recently reported "pro-forma" organic growth. Report same-store-sales organic growth figures in earnings releases that contain only pro-forma data.
- Valeant repeatedly tells investors it gets an IRR of at least 20%. How does Valeant reconcile this with Valeant low return on capital of 13%?
- Valeant claims it has low R&D. But it "pre-pays" for R&D in a one-time payment called an acquisition. The SEC should ask Valeant to include "pre-payment" along with "low R&D".
- The war of words between Valeant and Allergan continues, with prominent hedge fund managers on both sides.
- Valeant has stretched the truth on several occasions in its attempt to defend its acquisition-heavy strategy.
- The Allergan board is right to try to keep the company independent from Valeant's value-destroying strategy.
Who Is Telling The Truth On Fillers: Valeant's CEO Or Allergan's CEO? Is Valeant's Debt A Time-Bomb?
- Valeant's CEO and Allergan's CEO are contradicting each other on Valeant's filler market share gain/loss. The Wall Street Journal's research backs Allergan's CEO.
- Valeant debt's weighted average maturity is just 5 years and 4 months. Valeant's leverage is very aggressive compared to even utilities like Comcast and DirecTV.
- Valeant's debt would be OK if it were a cable company. Cable companies are local monopolies when it comes to Internet access. But drug revenues can disappear suddenly.
- If Valeant's market share falls like it appears for fillers, Valeant would have to issue a lot of equity to repay debt. Fillers were supposed to be what Valeant calls "durable, cash-pay".
Allergan (AGN) Q3 2014 Results - Earnings Call WebcastOct. 27, 2014
Allergan Inc. Discusses Q3 2013 Results (Webcast)Oct. 29, 2013
Nov. 21, 2014, 1:51 AM
- Valeant Pharmaceuticals (NYSE:VRX) has slashed its stake in Allergan (NYSE:AGN) to 0.1% from 9.7%, three days after Actavis (NYSE:ACT) trumped its offer for the Botox maker.
- Pershing Square and Valeant have now sold all 2.2M Allergan in PS Fund 1, a shell fund that was set up by the two to act as a joint acquisition vehicle.
- VRX -0.8% AH
Nov. 11, 2014, 4:16 PM
- The presence of Pershing Square's Bill Ackman on the list of major investors in Zoetis (NYSE:ZTS) sends a clear signal that it may be an acquisition target by none other than Valeant Pharmaceuticals (NYSE:VRX). A deal is not out of the question in light of its diminishing prospects of acquiring Allergan (NYSE:AGN) since Actavis (NYSE:ACT) joined the mix.
- In after hours trading, VRX is up a fraction and ZTS is unchanged, both on higher-than-normal volume.
- Previously: Zoetis jumps 6% on report of Ackman stake
Nov. 7, 2014, 1:53 AM
- Salix Pharmaceuticals (NASDAQ:SLXP) -38.3% AH after announcing an accounting revision that showed sales of its drugs not as strong as Wall Street's expectations. The changes were accompanied by the resignation of CFO Adam Derbyshire.
- The accounting issue also played a role in scuttling a potential takeover from Allergan (NYSE:AGN) earlier this year, WSJ reports.
- Salix lowered its earnings guidance for the year, and now expects 2014 net income of $400M, or $5.20 per share, down from earlier estimates of $475M, or $6.16 per share.
Oct. 7, 2014, 6:06 PM
- Valeant (NYSE:VRX) and Bill Ackman's Pershing Square Capital plan to up their hostile cash/stock bid for Allergan (NYSE:AGN) by $15/share, the WSJ reports. Based on Valeant's Tuesday close, that puts the new offer around $191/share.
- Valeant/Pershing are still reportedly "ironing out questions of timing and the mix of cash and stock for the additional $15-per-share rise."
- AGN +2.6% AH to $191.00.
- Earlier: Allergan asks judge to keep Pershing's stake out of shareholder vote
- Update (6:15PM): Valeant is up 3.4% AH.
Oct. 2, 2014, 6:16 PM
- Bloomberg reports Salix (NASDAQ:SLXP) is now in talks to sell itself to Actavis (NYSE:ACT), and that M&A talks with Allergan (NYSE:AGN) have faded.
- A tangled web: The WSJ previously reported Allergan was in "advanced talks" to buy Salix after turning down Actavis. Since then, speculation has grown Actavis will bid for Salix.
- SLXP +3.9% AH.
Sep. 23, 2014, 2:27 PM
- Pfizer (PFE -0.6%) approached Actavis (ACT +3.3%) to "express its interest in an acquisition," sources tell Bloomberg. However, the news service adds the companies "aren’t currently in formal talks and Pfizer hasn’t made an offer."
- Actavis has spiked on the report. Pfizer, interested in doing a tax inversion deal, made a rejected bid to acquire AstraZeneca earlier this year. Actavis was reported yesterday to have made a rejected offer for Allergan (AGN +1.4%), which is reportedly in advanced talks to buy Salix.
- Yesterday, the Treasury Department announced it's close to finalizing rules meant to discourage U.S. companies from doing inversion deals.
Sep. 22, 2014, 6:27 PM
- The WSJ reports Allergan (NYSE:AGN) is "in advanced talks" to buy Salix (NASDAQ:SLXP) in an all-cash deal after turning down an offer from Actavis (NYSE:ACT). The paper adds an Allerga/Salix deal, meant to thwart Valeant's (NYSE:VRX) hostile bid for Allergan, could be announced "late this week or next."
- A source says Actavis is still interested in buying Allergan, but only through a "friendly" deal. Whereas Valeant has suggested it would pare back Allergan's R&D spend should its hostile bid succeed, Actavis has reportedly promised to keep Allergan's R&D spend intact.
- The WSJ originally reported of Allergan's interest in Salix in August. Soon after that, Bloomberg reported talks were "dormant" for the time being.
- SLXP +15.8% AH. AGN +1.4%. ACT +0.6%.
Aug. 20, 2014, 5:56 PM
- Bloomberg reports Allergan (NYSE:AGN) isn't currently in active buyout talks with Salix (NASDAQ:SLXP). Though Allergan approached Salix about a deal in recent months, the talks are currently "dormant," and Allergan is exploring other options to thwart Valeant's hostile bid.
- SLXP -2.7% AH. Shares rose over 15% yesterday after the WSJ reported Allergan has approached Salix about a potential deal. They fell 2.3% in regular trading today.
May. 30, 2014, 2:48 PM
- The new bid raises the cash portion of the deal to $72 per share from $58.30 previously. The stock portion - 0.83 shares of Valeant (VRX +2.9%) for each share of Allergan (AGN +6.7%) remains the same.
- As part of the new offer, Pershing Square - Allergan's largest shareholder with a 9.7% stake - has agreed to elect to receive only stock and exchange its shares for Valeant shares at a 1.22659 exchange ratio.
- Bill Ackman: "[I] offered to give up $600 million of value to the other Allergan shareholders and exchange our shares for Valeant stock if Valeant were prepared to increase its offer to the other Allergan shareholders. We believe that our gesture to the other Allergan owners makes an extraordinarily strong statement about our belief in the long-term value of this highly strategic business combination."
- Source: Press Release
- Previously: Valeant boosts offer for Allergan
Apr. 22, 2014, 12:46 PM
Apr. 22, 2014, 9:14 AM
Apr. 21, 2014, 5:53 PM
- David Faber reports Valeant (VRX) will make a $45B+ hostile bid for Allergan (AGN), of which 1/3 will be financed with cash. He expects an announcement tomorrow.
- After factoring a 6% gain in regular trading a 19.7% AH gain, Allergan is currently worth $50.9B. Valeant is worth $46.4B, after accounting for a 3.2% gain in regular trading and a 10.3% AH gain.
- Valeant and Bill Ackman's Pershing Square Capital have each filed 13Ds (I, II) stating Pershing Square now has a 9.7% stake in Allergan.
- Valeant says it expects to propose a merger with a ~$15B cash component, and that it's contributing $75.9M in working capital to an entity (known as PS Fund 1) to be used by Valeant and Pershing to pursue their bid.
- Faber: "So Ackman can buy $3b in [Allergan] stock, which he will sell to [Valeant] for a lot more if it succeeds in an offer Ackman knew was coming."
- Previous: Valeant and Ackman eye Allergan
Apr. 21, 2014, 5:45 PM
Mar. 3, 2014, 10:18 AM
- Revance (RVNC) continues its volatile ways following its IPO on February 6, when it debuted at $16. The stock is up 2.5% today at $27.61 but that's down sharply from earlier highs and follows a steep fall at the end of last week.
- Revance's lead product is a topical Botulinum Toxin Type A Gel for the treatment of lateral canthal lines (crow's feet). It will complete with Allergan's (AGN) blockbuster injectable treatment Botox.
- Botulinum is in Phase 3 trials in the U.S.
- Anaylsts' price targets range from $37-55.
Jan. 7, 2014, 9:58 AM
- BofA upgrades Perrigo (PRGO +1.2%) to Buy from Neutral. RBC starts the shares as a Top Pick, with a $187 price target.
- BofA upgrades Becton Dickinson (BDX +0.8%) to Neutral from Underperform.
- RBC upgrades Johnson & Johnson (JNJ +1.6%) to Outperform from Sector Perform. Price target is $104.
- Citi upgrades Varian Medical (VAR +1.6%) to Neutral from Sell.
- Roth starts ANI Pharma (ANIP +9.5%) at Buy. Price target is $27.
- RBC starts Teva (TEVA +0.1%) at Sector Perform. Price target is $39.
- RBC starts AcelRx (ACRX +2.5%) at Outperform. Price target is $15.
- RBC starts Mylan (MYL +2.3%) at Outperform. Price target is $50.
- RBC starts Allergan (AGN +1.3%) at Outperform. Price target is $131.
- RBC starts Impax Labs (IPXL +0.2%) at Sector Perform. Price target is $25.
Dec. 6, 2013, 2:37 PM| Comment!
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