Valeant's bid for Allergan has heightened the debate around the formers penchant for cutting R&D as a central theme in its acquisition model. Basically, the company has been a serial acquirer and has helped pay for each acquisition by cutting the acquired company's R&D and other support staff. This has seemly worked to grow Valeant's overall revenue but there is a live debate as to whether it has actually generated any profit growth -- or any value. Many, including Allergan management, have questioned whether the Valeant model is sustainable, and if they do get hold of Allergan whether the R&D cuts that are sure to follow will destroy all value in the original Allergan asset. Valeant says not. Allergan says it most certainly will.
Meanwhile, Allergan's activitist investor, Bill Ackman, continues to push for a sale to Valeant, and says that he has the word of key Allergan owners that they will sell their shares for a $180 per share offer. He continues to push for a special board meeting as early as August to try to get this accomplished. So it seems, if Valeant can come up with the additional $18 per share that it needs to hit such a figure, despite its current $23.4 B debt, it could get the sign off that it needs to make the deal. In this event, Allergan shareholders will be abetting Valeant in another serial acquisition.
But, as the offer also includes up to 0.83 shares in Valeant stock per Allergan share, will they also be abetting the slitting of their own throats when Valeant's financials fall down as they inevitably will with this business model and no R&D pipeline to keep them afloat for the long term. See Fierce Biotech.
Posted by Bruce Lehr June 11th 2014.