Pressure mounting on Allergan as proxy firm ISS criticizes board approach

MONTREAL – Allergan is facing growing pressure to give its shareholders a vote on any deal the Botox maker may conclude to thwart a hostile offer from Valeant Pharmaceuticals.

Proxy advisory firm Institutional Shareholder Services has joined several large Allergan shareholders calling for a vote after reports surfaced that it is in talks to buy Salix Pharmaceuticals. The US$10 billion all-cash deal could make it too expensive for Valeant (TSX:VRX) to purchase the company.

ISS said Allergan (NYSE:AGN) should welcome a shareholder vote on acquisitions if its board is confident about its strategy and business judgment.

“The question is not what the board can do, but what the board should do,” it wrote in a report.

Allergan’s largest shareholder, Pershing Square Capital, has threatened to sue Allergan if it tries to buy Salix without holding a shareholder vote. The investment firm headed by Bill Ackman has teamed up with Valeant to make a $50-billion takeover bid for Allergan.

Other large investors, including T Rowe Price Associates, Jackson Square Partners and Pentwater Capital Management have also said Allergan shouldn’t complete any acquisitions before a special meeting initiated by Pershing Square on Dec. 18 to remove several Allergan board members.

The issues to be voted on at the meeting are so important, they impose a “special duty” on the board not to approve any significant, irreversible commitments “unless shareholders are offered the opportunity to vote on them,” wrote T Rowe Price, Allergan’s second-largest shareholder.

But ISS said the Allergan board’s record is not reassuring.

“The credibility question is amplified when a board has demonstrated little interest in other opportunities to enhance shareholder value until was suddenly face-to-face with an unsolicited premium offer,” it said.

“The real question for current Allergan shareholders is not whether a given acquisition target makes more sense than others, but whether an acquisition of any target makes more sense than engaging with Valeant and any other potential buyers.”

None of the main parties in the hostile takeover — Allergan, Valeant or Pershing Square — would comment on the ISS report.

Canaccord Genuity analyst Neil Maruoka said before ISS issued its report that the likelihood of Allergan sealing the deal with Salix was already slipping, suggesting the purchase wasn’t a wise use of Allergan’s capital.

He said Actavis — whose bid for Allergan was reportedly rejected by the Botox company’s board — is a much more logical buyer.

Although the situation is “very fluid,” Maruoka said Valeant could succeed if it increased its bid or changed the structure.

“It would most likely do so within that 10-day window (between the release of Valeant’s third-quarter results and the Oct. 30 record date to vote at the special meeting) in order to secure as many votes as possible for the Dec. 18 date.”

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