The ball started rolling with Valeant's and Activist Investor Bill Ackerman's (his given name, his parents call him A.I. ) now-hostile attempt to buy Allergan. Allergan is perfect for Valeant with its low investment cash cow Botox property. It is further stocked with low-hanging fruit for cost-cutting by having a substantial R&D effort. Again, perfect for Valeant's penchant of taking a knife to costs of acquired victims.
Allergan management is no doubt in panic mode now. They have two choices --- become part of Valeant or do ANYTHING else. In addition to enacting a posion pill to slow Valeant and A.I. down, they are beating the bushes for an acquisition or an acquirer.
On the acquisition front, they have made two now rebuffed offers to Shire. Shire being attractive as a growing provider of orphan drugs -- i.e. a comer with a future, and as a company located in a low rate tax haven. A purchase of Shire will allow Allergan to relocate its headquarters to the friendly confines of the Emerald Isle with its 12.5% rates (vs. 35% US rate). Unfortunately, Shire has a brand new CEO and he hasn't finished building his own legacy so Shire at the moment has spurned Allergan overtures.
Not to worry, Allergan can sell itself to the highest bidder (corporate prostitution?) -- as long as that company has no penchant for taking the long-knives to the R&D department or sales and marketing staff. Better to lose one's independence to a friendlier buyer. Thus we have today's rumors that Allergan is also shopping itself to the likes of Sanofi, J&J or even perhaps Bayer (if it can sell off its plastics division). Pharma companies being more used to carrying high costs of R&D and other overhead.
This must come as big news to Sanofi's CEO Chris Viehbacher as he is splashed all over the news today as marvelling at Pfizer's chutzpah in offering over $100 B to acquire AstraZeneca in the latest mega-megamerger proposal. Viehabacher at the same time says he is not interested in such transactions and you can count him (and Sanofi) out. He will stick with bolt-ons in emerging markets and in consumer healthcare -- does Allergan's Botox fit that description?
Pfizer for its part is said to be pressing ahead with a potential hostile takeover attempt with AZ. Analysts seem to agree that AZ --- on balance -- is a mediocre target for Pfizer. Except, that AZ does have some level of pipeline product complementariness and AZ is also attractive due to is location in a lower rate tax locale. There's that T Word again. It would likely serve Pfizer's purposes to have a UK address so it could repatriate some of its $70 B in foreign profits and maybe put it to good use. Though with its usual sterling lack of imagination, we have CEO Ian Read talking about stock buy backs and increased dividends. Yawn.
It used to be that companies went after one another to build something -- i.e. increase market share, acquire technology/IP, increase low cost of manufactuirng positions, etc. Now we have "tax rate arbitration" as the driving force behind some of the industry's biggest mergers? Yes, they help pay the bills in the short term. But what value is really created? Isn't this just another form of cost cutting? You are doing nothing to make your company inherently more competitive. That's sad.
What's sadder is the spectacle of governments competing against one another to give away the goodies to draw companies to their shores. Wonderful if you get one, until you learn that the same company who is going to snarf up all those tax breaks is also going to eliminate manufacturing and R&D jobs from your shores to "save costs". But don't worry. The shareholders may end up with $0.25 more/share in their dividend.
Posted by Bruce Lehr April 29th 2014.
References (coming soon)