The ongoing war between the aggressive buyer and uninterested device maker has taken a toll on Valeant, and some negative sentiments from shareholders may signal the downfall of the unrequited $53 billion offer, one analyst said.
In the latest volley in the ongoing war, Allergan claimed that Valeant is being stingy with some disclosures and misleading with others, adding that the would-be buyer has made inconsistent statements about its financial outlook in order to hide declines.
"In Allergan’s view, Valeant’s ongoing failure to provide complete, fully transparent information and relevant supporting data for its performance remains a significant and growing concern among Allergan’s stockholders and the overall investment community," according to an Allergan statement. "At the same time, there continues to be an overwhelming divergence between Valeant’s reported GAAP and non-GAAP results, additionally highlighting the opaqueness of Valeant’s financial reporting."
The alleged inconsistencies are of particular interest to Allergan shareholders, since Valeant is offering units of its own stock as part of the payment for Allergan’s shares.
Allergan detailed a laundry list of "concerns" about Valeant’s earnings, citing missing sales analytics, contradicting statements about its financial guidance, hidden losses and more. Allergan further accused Valeant of misrepresenting Allergan and the impact of a potential acquisition.
The accusations appear sound, according to BMO analyst David Maris, who issued a statement today largely agreeing with Allergan’s concerns.
"Allergan’s criticisms seem well-founded, in our opinion," Maris wrote in an note to investors. "Pointing to the risks of Valeant’s business model, Allergan quoted a June 17 conference call in which Valeant’s CEO stated, "I am very confident that we will meet expectations in Q2 and the rest of the year," and 6 weeks later Valeant lowered its 2014 guidance."
Valeant may be facing some pressure from its own stakeholders as well and Valeant’s stock has taken a hit since it began fighting with Allergan.
"Valeant held investor meetings in NY, and some of the feedback we have heard from investors has not been positive," Maris added. "Feedback included that little new information was covered, VRX acknowledged that the EPS guidance around divestitures could have been handled better, and the timeline for a potential resolution seems to be getting longer."
"Based on our conversations with investors, we believe the prospects of a Valeant deal are diminishing, and investor sentiment seems increasingly negative on deal prospects," Maris added. "Allergan has been effective in both calling out its concerns about Valeant and explaining how the legal suit makes timelines uncertain. With a lower share price, we believe the prospects of Valeant’s raising the bid for Allergan via the share ratio have diminished, and with Valeant recently lowering its EPS guidance, we think the prospects of its raising the cash portion (via increased debt) have also diminished."
Allergan hasn’t been pulling its punches in fighting off the unwelcome advances of would-be acquirer Valeant and its activist-investor supporters. Valeant has already twice sweetened the pot for Allergan to no avail, and Allergan has only stepped up its game in challenging Valeant’s history and business philosophy.
Both sides have brandished some negative rhetoric in the fight, most recently with Allergan’s claims that Valeant is concealing something with its lack of transparency and Valeant’s claims that Allergan has cooked up a "scorched earth, negative information campaign" to stifle acquisition talks.