Thursday, November 20, 2014

Actavis, Allergan, and Ackerman's 2 Billion Dollar Day

The Allergan saga repeats many common themes of mergers:

  • An activist sees ways to improve share-value and targets a company.  In this case Ackerman and Valeant thought Allergan could maximize value by slashing R&D
  • The target management disagrees and then takes defensive actions including a) seeking a white knight b) threatening legal action and c) doing many of the same things the activist proposed anyway.
  • A white knight arrives touting great synergies and offering more than the activist.  Shareholders of the target (Allergan) gain.   (This step is often missing and shareholder welfare might not be maximized.)
  • The activist gains on increased value of the toehold position in the target.  (See Bill Ackerman's $2.2 billion day.)
Often in these situations there is another theme: the winning bidder overpays (i.e, the winner's curse).   In this case, the CEO of Activis "admitted Actavis paid up for Allergan. ‘But in the midst of doing that, we got a company and a team that shouldn’t have been up for sale,’ he said during an interview. ‘This is a once-in-a-lifetime, a unique opportunity to transform our industry.’" See Actavis Agrees)

We’ll see.  In fairness, the stock price of Activis rose on the announcement.  A win-win-win for target shareholders-activists-acquiring shareholders?  That usually doesn’t happen.

All the best,


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