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way precluding discussions the Board may choose to engage in with other parties potentially offering higher value. 10 “Ackman, Valeant Team Up to Pursue Takeover of Botox Maker Allergan; Valeant, Allergan Each Worth More Tan $40 Billion,” by David Benoit, Dana Mattioli, and Jonathan D. Rockof, The Wall Street Journal , April 21, 2014. 11 “Allergan Formally Rejects Valeant’s $46 Billion Takeover Bid; Botox Maker Also Projects Double-Digit Revenue Growth for Next Year,” by Joseph Walker, The Wall Street Journal, May 12, 2014. A06-18-0005 7 This document is authorized for use only in Prof. Nandakumar M K's Strategic Management (SM) - Sec A at IIM Kozhikode - EPGP Kozhikode Campus from Jul 2020 to Dec 2020.
Te Core of the Debate As a rollup , Valeant believed in acquiring products well down the development pipeline, and not spending on R&D to create that pipeline. Tis was the standard operating procedure for generic pharma frms, where the focus was on managing established products and brands rather than trying to create new ones. Bill Ackman was a particularly strong believer in Valeant’s business strategy. Ackman argued that Allergan’s spending on R&D was wasted, inefcient, and unproductive (as was R&D spending by many major pharmaceutical frms, in Ackman’s opinion). Not only had it not yielded sufcient new revenue-generating products, he argued that the capital markets attributed little or no value to R&D. Allergan and Valeant Bicker Allergan, after having been long silent in the process, released an investor presentation on May 27 (an excerpt is provided in Exhibit 3) that detailed their concerns about Valeant’s track record. Valeant, however, argued that Allergan was essentially a generic pharmaceutical frm (specialty); hence, it should be slashing R&D expenses as its focus was not in the creation of new and early-stage pharmaceutical products. Exhibit 3. Allergan’s Concerns About the Valeant/Pershing Square Proposal From Allergan’s press release of May 27: Over the course of the past several weeks since the Valeant/Pershing Square proposal, we have met with many of our stockholders and stock analysts. During those conversations, many stockholders and stock analysts expressed serious concerns about the sustainability of Valeant’s business model. Some of the key themes included: Valeant’s low organic sales growth (driven mostly by price increases) Sustainability of acquisitions strategy Low R&D investment and the impact on future growth Market share erosion due to lack of sales and marketing infrastructure and investment Lack of transparency in fnancial reporting and sustainability of tax structure Given that the Valeant unsolicited proposal includes a substantial amount of Valeant stock in exchange for acquiring Allergan, this is a serious concern for Allergan stockholders.

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