Mr Ackman's Alphabetic Lineament To The Allergan Board

Reprinted inwards total without comment. Source here.

Pershing Square Letter to Allergan’s Board:

July 16th, 2014

Mr. David E. I. Pyott

Mr. Michael R. Gallagher

Mr. Russell T. Ray

Dr. Trevor Mervyn Jones

Mr. Louis J. Lavigne

Dr. Deborah Dunsire

Dr. Peter J. McDonnell

Mr. Timothy D. Proctor

Mr. Henri A. Termeer

Re: It is Time to Reflect

To the Board of Directors of Allergan:

In my 21-year history equally a governance investor, I cannot intend of only about other event inwards our portfolio where a board has behaved equally poorly equally y'all have got inwards your reply to the Valeant merger proposal. Your scorched world reply to Valeant is beyond the pale. You have got defendant Valeant of fraudulent accounting too of falsifying its reported growth rates too concern performance, too y'all have got done thus without factual evidence to essay these assertions. If i spreads imitation too misleading information for the role of driving downward Valeant’s stock price, that is marketplace manipulation, obviously too simple. That a board of a $50 billion marketplace cap companionship would engage inwards such behaviour equally a defensive tactic is extraordinary too incredibly inappropriate.

Valeant has offered to larn Allergan for $72 per part inwards cash too 0.83 shares of Valeant mutual stock representing a 50% premium to Allergan’s unaffected price, a transaction inwards which Allergan shareholders volition ain 44% of the combined company. In addition, Valeant has offered to number a CVR to part the value of DARPin alongside Allergan shareholders. Valeant has raised its bid twice, lastly inwards reply to feedback nosotros received from what nosotros believe to live a instance sample of the largest institutional, long-standing shareholders of Allergan. We remind y'all that the electrical flow value of Valeant’s stock does non reverberate the value ultimately received past times Allergan shareholders because Valeant’s stock currently trades at a substantial discount due to Allergan’s scorched earth, negative information travail against Valeant, the incertitude of transaction consummation due to Allergan’s defensive tactics, too the resulting delays inwards fourth dimension to closure.

Nearly 90% of Allergan stock has changed hands at prices inwards a higher house $160 per part since the Valeant bid was made public. We believe that a substantial division of these shares have got been purchased from long-standing investors of Allergan that produce non believe that the electrical flow marketplace prices are reflective of Allergan’s value equally an independent enterprise, and/or have got lost confidence that the board too management volition human activity inwards shareholders’ interests. These investors are sending a rigid too clear message to the board that it is fourth dimension to negotiate a bargain alongside Valeant.

Meanwhile, the board continues to stick its proverbial caput inwards the sand. By refusing to engage alongside Valeant, nosotros believe that y'all have got breached your fiduciary duty of help too ultimately your duties of loyalty too goodness faith. Valeant is non offering to purchase Allergan for cash, rather the bulk of the consideration is inwards the degree of mutual stock of the combined enterprise. As a result, the value of the consideration is contingent on the futurity value of the merged company, 44% of which volition live owned past times Allergan shareholders.

When a stock transaction is proposed betwixt 2 similarly-sized enterprises similar Valeant too Allergan inwards which the target shareholders volition ain a large pct of the acquirer, the value of the combined companionship tin exclusively live determined past times a detailed analysis of transaction synergies, strategic overlap, futurity concern plans, too other factors. This information tin exclusively live obtained past times engaging alongside Valeant. It is hard to empathize how y'all tin live satisfied that y'all are exercising due help when y'all are refusing the chance to review available information that is critical to your decision. Based on Allergan’s populace attacks on Valeant’s business, it is manifest that y'all produce non have got an adequate agreement of Valeant for y'all to fulfill your obligation to create upwards one's heed whether the transaction is inwards the best involvement of Allergan shareholders.

I enquire that y'all visit the below questions inwards lite of your published statements that the Valeant offering is “grossly inadequate.” If today’s discounted value of the Valeant bid of $171 per part “grossly undervalues” Allergan then:

Why did Mr. Pyott sell $31 i chiliad 1000 dollars of mutual stock at $123 per part inwards Feb of this year?

Why did other executives sell an additional $57 i chiliad 1000 of stock at $119 dollars per part inwards the commencement quarter of this year?

Why did the compensation commission accolade millions of dollars of restricted stock too options to management before this twelvemonth based on management’s sandbagged net targets? We annotation that only prior to the Valeant offer, Allergan management had announced an “aspirational” net growth charge per unit of measurement of 15%. Two weeks afterward the Valeant offer, management increased its guidance to 20% compounded net growth over the side past times side 5 years. Remarkably, Mr. Pyott is at nowadays hinting that guidance volition live raised yet in i lawsuit to a greater extent than on the upcoming net call.

Why is Allergan contemplating taking on billions of dollars of leverage too initiating a multibillion dollar buyback at a probable substantial premium to today’s stock cost when it was unwilling to repurchase stock less than a twelvemonth agone at one-half of today’s stock price?

Why is the companionship at nowadays considering making a major acquisition? If such a value-creating transaction were available inwards the past, why did the companionship non human activity on it thus when the marketplace for pharma deals was less heated? Why would Allergan hold off until its negotiating leverage has been impacted past times every seller’s cognition that management is desperate to produce a bargain to “defend” the companionship from beingness acquired?

How tin the board ignore the fact that Goldman Sachs, Allergan’s fiscal advisor, right away prior to the annunciation of the transaction (before it was required to suspend coverage), had a cost target for Valeant of $164 too had Valeant on its “Conviction Buy List”? At $164 per Valeant share, nosotros annotation that the Valeant bargain is worth $208 per Allergan share.

How tin the board ignore the valuations too target prices that its ain advisers had for Allergan too Valeant before they were hired to “defend” the company?

In June of final year, Goldman Sachs raised $2.3 billion equally Valeant’s sole underwriter of its equity offering. Why would Goldman Sachs have got assumed sole underwriter liability inwards doing thus if Valeant’s fiscal statements are fraudulent equally y'all have got suggested?

We annotation that inwards Allergan’s 14D-9, the inadequacy opinions Allergan obtained from the company’s bankers expressly state: “We produce non limited whatever see on, too this Opinion does non address, the fairness, from a fiscal betoken of view”... of the Valeant offer. Why didn’t the board insist that the company’s fiscal advisors consummate a fairness analysis of the Valeant proposal before determining that it was inadequate?

How tin the board have got adequately informed itself of fairness of the Valeant proposal if it did non have a fairness analysis from its ain advisors?

Members of the board of directors of a Delaware company faced alongside a takeover bid are required to inform themselves of all cloth information almost a transaction, too thus human activity alongside help inwards evaluating it. By failing to authorize your advisors to run into alongside Valeant to address whatever of the board’s stated concerns almost its organic growth, accounting, concern sustainability, or synergies, the board too its advisors have got failed to produce a reasonable investigation of the Valeant transaction. As a result, nosotros believe y'all are inwards breach of your fiduciary duties, too have got otherwise non acted inwards goodness faith.

We would have got expected to a greater extent than from y'all based on your personal career runway records upwards until this time, too what nosotros have got heard almost only about of y'all from individuals nosotros know inwards common. I had hoped that your initial approach to this transaction was an ill-advised negotiating strategy, but the passage of fourth dimension too your continued misinformation travail almost Valeant have got caused us to conclude that y'all are no longer check to serve the interests of shareholders. As a result, nosotros have got recruited a grouping of extremely talented executives too experienced populace companionship directors who empathize their fiduciary duties too have got a runway tape of acting inwards the best involvement of shareholders too the companies they have got managed equally CEOs too equally members of their boards of directors.

We encourage y'all to review the backgrounds of the individuals on our slate who have got agreed to serve on Allergan shareholders’ behalf. They volition convey to the board room superb runway records inwards creating too maximizing shareholder value coupled alongside fantabulous transaction skills, accounting expertise, wide concern sense too healthcare too pharmaceutical manufacture domain expertise. We would live surprised if only about of y'all produce non know, or know of, the individuals who have got agreed to serve. Ask yourself why a grouping of high character individuals, who surely don’t take away the directors’ fees, have got agreed to supersede y'all at the shareholders’ behest on Allergan’s board.

The bottom delineate is this: it is fourth dimension for y'all to facial expression at yourself inwards the mirror too enquire yourself whether your behaviour equally a manager of Allergan is appropriate too consistent alongside your long-term personal reputation too the agency y'all would similar to live perceived too judged past times institutional too retail investors, the full general public, too members of your community too immediate family. Ask yourself whether your approach to this transaction has been business-like too professional, whether y'all have got been adequately informed past times management too your advisors almost Valeant, too whether y'all have got fulfilled your duties of care, loyalty too goodness organized religious belief equally a director. Ask yourself whether if y'all had one-half your cyberspace worth invested inwards Allergan stock (and were non otherwise conflicted past times beingness a fellow member of management) the approach y'all have got taken is consistent alongside maximizing value for shareholders?

We believe the vast bulk of Allergan’s shareholders are extremely concerned that, to date, y'all have got non fulfilled your fiduciary duties. Perhaps to a greater extent than significantly for y'all personally, y'all have got harmed your reputations equally corporate citizens. We remind y'all that it takes a lifetime to construct a reputation too exclusively a few minutes to destroy it.

Rather than endeavor to delay the inevitable too farther harm your reputations, nosotros enquire that y'all halt this nonsense, too authorize prompt negotiations alongside Valeant. If, equally business office of your due diligence on Valeant, y'all and/or advisors abide by the malfeasance that y'all have got suggested exists, thus equally Allergan’s largest shareholder alongside a $5 billion investment nosotros would of course of didactics strongly oppose a Valeant transaction.

If, however, your due diligence determines, equally nosotros (after the completion of our ain detailed due diligence) too other major Allergan shareholders who ain stock inwards both companies have got concluded, that Valeant has built a well-managed, decentralized, disciplined specialty pharmaceutical manager, operator, too acquirer which offers tremendous strategic overlap too synergies alongside Allergan, thus commencement apologize, too thus negotiate the best bargain y'all tin for Allergan shareholders. Valeant has publicly stated that it is opened upwards to farther negotiations if the board engages promptly inwards goodness organized religious belief negotiations.

We are at nowadays working to obtain the consents to telephone scream upwards a especial meeting, too upon their receipt, nosotros volition enquire the board to telephone scream upwards the meeting. While nether the company’s highly restrictive too cumbersome especial coming together mechanics, y'all have got the mightiness to delay the coming together for upwards to 120 days, nosotros on behalf of Allergan’s other shareholders enquire that y'all produce non delay the inevitable whatever further. What legitimate board of directors attempts to quiet or otherwise delay hearing what its ain shareholders have got to say? Shareholders are looking frontwards to expressing their views.

PERSHING SQUARE CAPITAL MANAGEMENT, L.P.

Sincerely,

William A. Ackman

Chief Executive Officer