VRX - Valeant Pharmaceuticals International Inc.

[loganc]

You still think it is simply posturing? Management just compared Valeant to Tyco. This doesn't sound like they want a higher price. It sounds like no way in hell they are going to let Valeant rape their company and employees. 

 

That is an interesting way to put it.  One man's "raping of the company and employees" to another man's being judicious in allocating R&D spend. 

 

I guess whenever Pearson cuts costs in the acquisitions it is "raping the company" and when 3G implements zero based budgeting at Burger King and Heinz it is efficient capital allocation.  The fascinating thing to me is why the VRX operating model would inspire one to use such an incendiary phrase. 

[Guest wellmont]

allergan is simply posturing. the business "model" they decry has increased shareholder value by 8x in a few years. allergan have no real defense. so they are attacking vrx. but the allergan shareholders will decide; not the entrenched management and bod. I think they are just trying to raise the price, which is what they should be doing. they will kiss and make up once they close the deal and negotiate their golden parachutes.

 

You still think it is simply posturing? Management just compared Valeant to Tyco. This doesn't sound like they want a higher price. It sounds like no way in hell they are going to let Valeant rape their company and employees. 

 

They are attacking the source of currency that's being used in the offer which is the stock. We'll see if Valeant goes into the details of their business model tomorrow morning. If they gloss over anything it just gives more credence to the accusations.

 

A deal might get through, but management is going to delay as long as possible and who knows how long the favorable financing will be in place.

 

who cares what agn Management says. Their Management is all about self preservation. their lives change radically if they are acquired by VRX. They don't want this outcome. They want to continue the status quo which has been very very good to them. the shareholders will decide this. And I will make a prediction. I think this deal gets done and they all kiss and make up. And AGN manglement will negotiate some very attractive golden parachutes for themselves.

[loganc]

who cares what agn Management says. Their Management is all about self preservation. their lives change radically if they are acquired by VRX. They don't want this outcome.

 

I think this is the salient point.  I think the CEO of AGN likes being the CEO of AGN.  I don't blame him.

[PJM]

Interesting presentation. Some very insightful details but after that it fell to some very insensible slides showing difference between adjusted cash earnings vs. GAAP earnings, quoting chanos etc.

 

What is insensible about it?

 

I did not know that VRX relies on heavy price increases to keep revenues even. This does not look sustainable to me. I also did not know that moving the IP into offshore tax havens had a significant upfront cost, Of course VRX can book this as a one off charge, but if it indeed takes a decade to get even in terms if cash flow it seems like the tax deal is not that great.

 

 

Many other good points (regarding R&D budget versus forecast, feasibility to cut 74% of the SG&A etc ). They also brought up the Tyco rollup analogy that I mentioned before in this thread. It will be interesting to see VRX rebuttal.

 

Yes point regarding cost of moving IP into offshore tax haven was insightful.

 

However to fend off a takeover by citing comments from a hedge fund manager is nothing more than sign of fear and desperation. Also anyone who has read VRX financials know that the adjusted cash earnings are different than GAAP earnings, so what was the point there?

 

I do agree that VRX always showing organic growth ex-generics impact is not appropriate and misguiding in many ways but disagree that there is market erosion due to price increases. What is wrong in increasing top line with price increases? They probably can increase the price because they have the pricing power. Many companies have suffered huge losses because they spent a fortune in just trying to grow the market share by undercutting the price. In fact AGN did not show if their own distribution strength (slide 14) in markets such as Brazil, Russia, India etc is due to superior marketing, R&D or just cutting the prices?

 

Btw i'm not taking any view here and suggest that VRX acquisition of AGN is a good one or not, but i just felt lack of substance in AGN ppt.

 

 

 

[giofranchi]

Valeant Pharmaceuticals To Sell Filler And Toxin Assets To Nestle For $1.4 Billion

 

05/28/2014

 

LAVAL, Quebec, May 28, 2014 /PRNewswire/ -- Valeant Pharmaceuticals International, Inc. (NYSE: VRX) (TSX: VRX) today announced that it has entered into an agreement with Nestle S.A. to sell all rights to Restylane, Perlane, Emervel, Sculptra, and Dysport owned or held by Valeant for $1.4 billion in cash.  Nestle expects to complete its acquisition of Galderma S.A. in July and would expect to operate the acquired assets through Galderma.  The transaction is subject to customary closing conditions, including clearance or early expiration of the waiting period under the Hart-Scott-Rodino (HSR) Act and is not contingent upon a successful transaction with Allergan, Inc. We believe that this transaction is extremely attractive both to Valeant and Galderma, and dovetails well with our announced plans for a transaction with Allergan.

 

"We are pleased to enter into this transaction," said J. Michael Pearson, chairman and chief executive officer.  "Galderma, under the leadership of Humberto Antunes, CEO of Galderma, not only has a history of building strong businesses, but is firmly committed to the aesthetic dermatology.  It is a clear testament to the performance of Valeant's aesthetic commercial team that Galderma recognizes their efforts and the value of the franchise they have developed.  Galderma has already built a strong franchise with Restylane, Perlane, Dysport and Emervel outside North America and, with the addition of Sculptra, will now have the ability bring their expertise to the U.S. and Canada."

 

 

Gio

 

 

[giofranchi]

Valeant Substantially Increases Merger Proposal For Allergan

 

05/28/2014

 

LAVAL, Quebec, May 28, 2014 /PRNewswire/ --

•Increases Cash Consideration by $10.00 per share to $58.30, approximately 21 Percent Increase

•Maintains 0.83 of a Valeant share

•Adds Contingent Value Right for DARPin of up to $25.00 per Share in Value ◦Valeant Commits to Invest up to $400 Million in DARPin and Retain Current Allergan Employees Responsible for Development

◦Represents 40 Percent of DARPin Net Sales after Recoupment of the Development Investment

 

•Will Host Live Presentation and Webcast Today at 8:00 a.m. ET to Discuss Increased Proposal and Provide Further Clarity on Valeant's Operating Performance and Business Model

 

Valeant Pharmaceuticals International, Inc. ("Valeant") (NYSE: VRX) (TSX: VRX) today announced that it has submitted an increase to its April 22 proposal to merge with Allergan, Inc. (NYSE: AGN) to Allergan's Board of Directors.

 

Letter to Allergan CEO and Board of Directors

 

J. Michael Pearson

Chairman & Chief Executive Officer

2150 St. Elzéar Blvd. West

Laval, Quebec H7L 4A8 Canada

www.valeant.com

 

May 28, 2014

 

Mr. David Pyott

Chairman & CEO

Allergan, Inc.

2525 Dupont Drive

Irvine, California 92612

 

Dear Mr. Pyott,

 

As we publicly stated two weeks ago, today Valeant is increasing its offer for Allergan. Over the past several weeks, we have met with, and listened carefully to the views of, a number of Allergan shareholders.  Our revised offer is based on specific feedback we received in our discussions and offers Allergan shareholders, for each Allergan share (1) $58.30 in cash, representing an increase of $10, or approximately 21%, in the cash portion of the consideration, (2)  0.83 of a Valeant share and (3) a new CVR related to DARPin® sales which would provide up to approximately $25.00 per share of additional value  based on the approximately $20 billion in potential cumulative 10-year DARPin®  sales referred to in your May 12th presentation. We are prepared to fund up to $400 million to develop DARPin® and will pay 40% of the net sales of DARPin® referred to in your May 12th presentation after recovery of our shareholders' investment in DARPin® development expenses.  Shareholders will continue to be able to elect their mix of cash and shares, subject to proration, as well as receiving the CVR.  We would propose to retain Allergan employees to continue development of DARPin® and will ask Allergan to provide us a list of eight independent scientific and business leaders.  From these eight, we will select five to oversee DARPin® development and decide on all go / no-go decisions as the compound progresses.  We will work with Allergan's board and management to finalize the details of the CVR.

 

Our increased offer provides additional immediate value to the Allergan shareholders -- we note that the cash portion of our revised offer alone represents approximately 50% of Allergan's unaffected share price -- and provides Allergan shareholders with significant substantial additional value if DARPin® achieves Allergan's expectations. 

 

It appears based on Allergan's recent public statements that you have a fundamental misunderstanding of our business model and its performance.  We would be delighted to provide you and the Allergan board with the opportunity to better understand our business model and address any concerns that you may have.  This can be best accomplished by an in-person meeting with our team to better understand our business.  A meeting of our respective teams will allow you to review the facts regarding our offer and enable you to provide your board with the information necessary to fulfill its fiduciary duty in assessing the value of a Valeant-Allergan business combination.  We reviewed your consultants' analysis in the report Allergan filed yesterday, which contained numerous errors and misstatements of facts.  We hope you and your board have the opportunity to listen to our presentation later this morning, which we believe will address all your concerns regarding Valeant and our business model.

 

We strongly believe that applying Valeant's operating philosophy, strategy, and financial discipline to a broader set of durable assets will create substantial long-term returns for Allergan shareholders over the short, intermediate, and long term, and exceed returns available to Allegan shareholders through alternative options, including a standalone alternative.  As importantly, we believe the combined companies can better serve the patient and medical communities with a more complete offering of products and continued innovation in ophthalmology, dermatology, aesthetics, neurology and emerging markets.

 

Our discussions with Allergan's shareholders, many of whom are also our shareholders, have continued to express enthusiasm about our potential business combination.  We are confident they will view this offer – which delivers them greater upfront cash proceeds, the opportunity to continue to participate in the substantial cost and strategic synergies as a 43% shareholder of the combined company, and a CVR with significant upside based on the success of  DARPin® — as one that merits your immediate engagement with us. We ask you once again to enter into discussions with us promptly so that we can consummate this mutually beneficial transaction in a timely manner. We look forward to hearing from you.

 

Sincerely,

 

J. Michael Pearson

Chairman & Chief Executive Officer

cc: Allergan, Inc. Board of Directors

 

 

Gio

[ZenaidaMacroura]

they should just golden parachute them already.

[Liberty]

http://ir.valeant.com/files/doc_presentations/2014/20140528_Valeant%20story%20draft%20deckv87.pdf

 

They address AGN's allegations from yesterday toward the end.

 

On the organic growth, Ackman had explained it very well. There's two sides to the business. Durable assets, and depleting assets (near end of patent life). The latter can mask the growth in the first, but all that matters is you get good IRRs on that side and it's worth it even if the optics are distorted.

 

That's why they report with and without generics. It's actually shareholders who asked them to do that because it makes it easier to analyze the business (if you understand it), not as some pro-forma BS to remove bad things from the numbers.

[jay21]

Valeant Pharmaceuticals To Sell Filler And Toxin Assets To Nestle For $1.4 Billion

 

05/28/2014

 

LAVAL, Quebec, May 28, 2014 /PRNewswire/ -- Valeant Pharmaceuticals International, Inc. (NYSE: VRX) (TSX: VRX) today announced that it has entered into an agreement with Nestle S.A. to sell all rights to Restylane, Perlane, Emervel, Sculptra, and Dysport owned or held by Valeant for $1.4 billion in cash.  Nestle expects to complete its acquisition of Galderma S.A. in July and would expect to operate the acquired assets through Galderma.  The transaction is subject to customary closing conditions, including clearance or early expiration of the waiting period under the Hart-Scott-Rodino (HSR) Act and is not contingent upon a successful transaction with Allergan, Inc. We believe that this transaction is extremely attractive both to Valeant and Galderma, and dovetails well with our announced plans for a transaction with Allergan.

 

"We are pleased to enter into this transaction," said J. Michael Pearson, chairman and chief executive officer.  "Galderma, under the leadership of Humberto Antunes, CEO of Galderma, not only has a history of building strong businesses, but is firmly committed to the aesthetic dermatology.  It is a clear testament to the performance of Valeant's aesthetic commercial team that Galderma recognizes their efforts and the value of the franchise they have developed.  Galderma has already built a strong franchise with Restylane, Perlane, Dysport and Emervel outside North America and, with the addition of Sculptra, will now have the ability bring their expertise to the U.S. and Canada."

 

 

Gio

 

Do we know the cost basis for these assets and when VRX bought them so we can compute an IRR?  I believe Nestle is held in high regard so I think they would pay a fair market value so I would think this would be a good data point in terms of value creation.

[giofranchi]

http://ir.valeant.com/files/doc_presentations/2014/20140528_Valeant%20story%20draft%20deckv87.pdf

 

They address AGN's allegations from yesterday toward the end.

 

Pages 170 and 171 are very interesting! ;)

 

Gio

[Liberty]

http://ir.valeant.com/files/doc_presentations/2014/20140528_Valeant%20story%20draft%20deckv87.pdf

 

They address AGN's allegations from yesterday toward the end.

 

Pages 170 and 171 are very interesting! ;)

 

Gio

 

169 isn't bad either, showing how Allergan makes the same non-GAAP adjustments (I'm looking at the page numbers on the actual PDF, not within the PDF reader, as that gives different numbers because of the intro slide).

[giofranchi]

169 isn't bad either, showing how Allergan makes the same non-GAAP adjustments (I'm looking at the page numbers on the actual PDF, not within the PDF reader, as that gives different numbers because of the intro slide).

 

Ah! Ok, sorry! Then I meant pages 169 and 170! ;)

 

Cheers,

 

Gio

[Liberty]

I watched the whole almost 4-hour long presentation. I encourage those who want to understand the company better to do so, there's a lot of good stuff in there.

[Liberty]

If the 4-hour presentation wasn't enough for you, Mike Pearson is speaking at the Sanford conference right now. Audio should be available later. The interviewer is basically grilling him with all of Allergan's arguments and Pearson is giving very good replies, IMO.

[fareastwarriors]

Valeant’s Latest Move Disappoints

 

http://dealbook.nytimes.com/2014/05/28/valeants-latest-move-disappoints/?module=BlogPost-Title&version=Blog Main&contentCollection=Breakingviews&action=Click&pgtype=Blogs&region=Body

[txlaw]

Well, I've thrown this sucker into the too hard pile. 

 

Still looking forward to seeing what happens, though.

 

Well now, perhaps I spoke too soon.  The latest presentation looks like it has some detail that I wanted to see before making a decision on this one.

[original mungerville]

I watched the whole almost 4-hour long presentation. I encourage those who want to understand the company better to do so, there's a lot of good stuff in there.

 

You watched today's four hour presentation? I can't find a web link - do you have one?

[giofranchi]

Valeant’s Latest Move Disappoints

 

http://dealbook.nytimes.com/2014/05/28/valeants-latest-move-disappoints/?module=BlogPost-Title&version=Blog Main&contentCollection=Breakingviews&action=Click&pgtype=Blogs&region=Body

 

Kozlowski enjoyed an extravagant lifestyle, with multiple homes, lavish parties, a racing yacht, and numerous charitable donations. His most notorious expenditure was $2.1 million on a party celebrating his wife’s fortieth birthday in Sardinia, Italy, that featured a life-sized ice sculpture of Michelangelo’s David with vodka flowing from its penis. To pay for these and other expenses, Kozlowski used over $75 million of Tyco funds. None of these expenditures was publicly revealed to the company’s shareholders.

-- http://historybusiness.org/2781-tyco-international-scandal.html?newsid=2781&seourl=tyco-international-scandal

 

Now, whoever compares VRX to Tyco:

1) Thinks Mr. Pearson is like Mr. Kozlowski… though I don’t understand on which basis, given the fact their behavior cannot be more different!

2) Has some personal reasons to discredit Mr. Pearson and his success in business…

3) Is not serious…

 

Gio

 

[CorpRaider]

Seems more like DHR than tyco to this moderately interested observer.

[Liberty]

I watched the whole almost 4-hour long presentation. I encourage those who want to understand the company better to do so, there's a lot of good stuff in there.

 

You watched today's four hour presentation? I can't find a web link - do you have one?

 

Linked from the investor presentations page. This should work:

 

http://www.vpsevent.com

[rogermunibond]

FT Lex column on Allergan/VRX deal

 

http://www.ft.com/intl/cms/s/3/e30359c8-e67b-11e3-b8c7-00144feabdc0.html

[Liberty]

FT Lex column on Allergan/VRX deal

 

http://www.ft.com/intl/cms/s/3/e30359c8-e67b-11e3-b8c7-00144feabdc0.html

 

Any highlight for those of us without a FT subscription?

[Spekulatius]

Seems more like DHR than tyco to this moderately interested observer.

 

I have mentioned the analogy of VRX with Tyco a while ago, but it has nothing to do with the CEO's lifestyle.

 

1) Both were rollups and made acquisitions at a breakneck  and accelerating speed.

2) Both TYC and VRX had a heavy debt load as they used partly cash to do acquisitions

3) Both had heavy and repeating adjustments to GAAP and convinced many that they Non-GAAP numbers based on "cash earnings" are the correct ones. It later became evident that TYco used merger related expenses ad a cookie jar to reduce Opex expenses, which made the non-GAAP earnings appear much better than they were.

4) Most strikingly (for me) is the fact that both Tyco and VRX dramatically reduced R&D spent. I vividly remembered Kozlowski stating that he could "buy R&D" or  developed products, "when he needed them"  (or something very similar).

 

Later, when the medical business from Tyco was spun off as COV , their R&D spent was a mere 2.5% of revenues, which is totally unsustainable, imo. You could see that the lifeblood was sucked out of this company, even though they had many products in stable markets and it took management a while, to get the company going again. Now they have R&D spent of 5% of their revenues and do fine.

 

None of the above means that VRX= Tyco, but for those that have been around, there are just a lot of similarities between the two companies.

[fareastwarriors]

FT Lex column on Allergan/VRX deal

 

http://www.ft.com/intl/cms/s/3/e30359c8-e67b-11e3-b8c7-00144feabdc0.html

 

Any highlight for those of us without a FT subscription?

 

 

 

 

 

Man: “Buy you a drink?” Woman: “You are a monster, I hope you die.” Man: “Dinner, then?” After Valeant’s first bid, Allergan said that Valeant’s business model and accounting were aggressive, unsustainable and opaque. It is hard to walk back from that in response to an offer that is less than 10 per cent higher and is still mostly in shares (that is, to be paid in an allegedly aggressive, unsustainable and opaque currency).

 

Many of Allergan’s key complaints – and Valeant’s replies to them, released on Wednesday with the new bid – are tricky for outsiders to assess. How much research spending is enough to sustain an eyecare business? How long can low tax rates be maintained? But one issue should be made clear to all: cash.

 

 

 

 

 

In 2013 Valeant’s GAAP net loss was $866m. Adjusted net profits were more than $2bn. Valeant makes big acquisitions, so non-cash expenses result from purchase accounting rules. It is helpful to see those struck out. The question is whether, over time, adjusted profit is backed up by cash flows. In 2012 and 2013, it was not: cash from operations was $750m and $1bn below adjusted earnings, respectively. Valeant also presents “adjusted cash flow”, which shows what cash flow would have been without costs it believes will not recur, mostly costs related to acquisitions.

 

The idea of adjusted cash flow is awfully cheeky. The defining feature of cash, as opposed to earnings, is that it is factual, not hypothetical. In response to Allergan’s worries about its earnings adjustments, Valeant points out that Allergan makes the same ones. That is beside the point. If operating cash has been significantly below adjusted earnings, Allergan shareholders should receive a simple explanation of why, in years to come, cash flow will tower over earnings. Lacking this, they should ask to be paid entirely in cold, hard currency.

 

[cubsfan]

Seems more like DHR than tyco to this moderately interested observer.

 

I have mentioned the analogy of VRX with Tyco a while ago, but it has nothing to do with the CEO's lifestyle.

 

1) Both were rollups and made acquisitions at a breakneck  and accelerating speed.

2) Both TYC and VRX had a heavy debt load as they used partly cash to do acquisitions

3) Both had heavy and repeating adjustments to GAAP and convinced many that they Non-GAAP numbers based on "cash earnings" are the correct ones. It later became evident that TYco used merger related expenses ad a cookie jar to reduce Opex expenses, which made the non-GAAP earnings appear much better than they were.

4) Most strikingly (for me) is the fact that both Tyco and VRX dramatically reduced R&D spent. I vividly remembered Kozlowski stating that he could "buy R&D" or  developed products, "when he needed them"  (or something very similar).

 

Later, when the medical business from Tyco was spun off as COV , their R&D spent was a mere 2.5% of revenues, which is totally unsustainable, imo. You could see that the lifeblood was sucked out of this company, even though they had many products in stable markets and it took management a while, to get the company going again. Now they have R&D spent of 5% of their revenues and do fine.

 

None of the above means that VRX= Tyco, but for those that have been around, there are just a lot of similarities between the two companies.

 

It's been a while, but as I remember Tyco - it seems like they were a pretty good collection of businesses that generated a lot of cash, etc.

The rollups seemed to work.

 

I thought the major issue with Tyco is that the CEO was a pig and basically rob the company for all his houses/toys, etc

while he acquired these great businesses.