Glossary of Hostile Takeover Terms with Discussion

Discussion in 'Allergan' started by Shoham, Jun 13, 2014 at 2:08 AM.

  1. Anonymous

    Anonymous Guest

    Hi Dan,

    Any idea how I would calculate my stock options if the deals goes thru? I have 1000 options with a strike price of $88. The cash/stock offer has me puzzled on how to figure the value.

    Thank you.
     

  2. Anonymous

    Anonymous Guest

    Hi Dan, thanks again for your helpful posts!

    I was wondering if you (or anyone else that wants to chime in) might have an explanation for why VRX and AGN stock would drop after the announcement that Ackman has requested the special meeting. From history, whenever VRX made an announcement that the "deal was imminent", both stocks would climb. VRX went up quite a bit on Friday but doesn't look so good this morning.
     
  3. Anonymous

    Anonymous Guest

    It all depends on the Terms and Conditions of the deal. Dan could speculate as to the value, but that's all it would be. The options could be converted into VRX options post deal, by which you could do nothing. Or if that was not negotiated, you would have to exercise them before the deal, with exercising and holding the only way to realize the full value of the deal. But, pre deal, there's only been a 2-5% spread between the market price, and the implied price. If the deal is to go through, the price VRX will have to pay is going to have to be north of the last implied price of $180.

    The more interesting question is if a deal goes through, would it be worth exercising and holding AGN before the deal so that you can realize the CVR in the future. My understanding of the CVR is that you only need to hold the stock at the time of the deal, and that you can sell it afterward, and still have the CVR. In that case, might be worth coming up with the $88K to exercise and hold, then sell the converted VRX stock after the deal closes.
     
  4. Anonymous

    Anonymous Guest

    because the AGN and VRX stock prices are so deeply correlated. they'll move together as the deal seems more or less likely. VRX at 117x.83(the offer price) is $97 in stock+72 in cash = 169 which represents a slight premium to AGN's current trading price. if the two stocks continue to hold withing 3% of the deal range as they are now, it's a signal that investors believe the deal will come together.

    Fridays' VRX move priced in the news, so until there's any more big news you can assume to see these two range bound and tied to one another. With investors asking the deal to be priced in the 180+ range, there's not a whole lot more upside needed to hit that number, so assume the two will stay relatively put, assuming no major news.
     
  5. Anonymous

    Anonymous Guest

    with a forecasted eps of 10 and multiple of atleast 23 (avg for sp pharma) intrinsic price is 230

    use that as basis of your decision

    and do not consider cvr ... it's DOA

    there is no cvr as board did not sit with mikey after it's announcement
     
  6. Anonymous

    Anonymous Guest

    that would be the least accurate and most unscientific valuation of a companay, ever. 2 year Forward guidance EPS, and against a huge multiple to the industry? to calculate a current asset price? Nice work bub.
     
  7. Anonymous

    Anonymous Guest

    I think you mean least scientific ... and even that's a stretch since valuing stocks is not a "scientific" endeavor. It's more of a rudimentary evaluation if anything.

    The poster should realize that the proposed valuation is a year and a half from fruition, and needs to be discounted, say at 10% per year. Furthermore, the guidance is just that, and needs to be discounted for probability of achieving, say another 10% discount. Then use a range for EPS multiples, say 20 - 25 and that gives us a trading price range for today of $156 - $195 (which we are clearly in). Then the discussion becomes about EPS multiples. To get to the high end of the range Allergan will need to demonstrate future EPS growth, which is projected at 20% through 2019. This seems ambitious to say the least. Furthermore, if the EPS growth isn't being driven by underlying revenue growth, then it's not sustainable, and the market will use the lower end of the range. 10% revenue growth driving 20% EPS growth again, sounds ambitious.
     
  8. Shoham

    Shoham Member

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    Option Valuation

    Hello:

    The math is easy, the tax decisions less so.

    Each option give you the right to buy one share for $88. Since the share is now trading around $163, this makes each option, today, worth about $75. If the Valeant deal goes through, the value of each share would be whatever Valeant is trading for it. As the offer stands today, Valeant is offering $72 case + 0.83 Valeant shares. With Valeant shares currently trading at about $115, the value of the offer is about $167 (not hugely different from the current trading price of Allergan). So, if you exercised and sold today, you will net (pretax) about $75K. If you did it after the deal (as currently offered) closes and Valeant share price is the same then as now, then about $79K.

    While the mechanics of the transaction will depend on how the various agreements are written, in all likelihood, the monetization of your options will happen in a manner that is financially equivalent to you exercising your option just before the transaction and then receiving the trade-in value ($72 cash + 0.83 Valeant shares) immediately afterward. If you do not have, or wish to commit $88K (the amount required to exercise all your options), most broker houses offer a "cashless" exercise service (for a few pennies per share, they lend you the $88K to exercise the option, then they immediately sell the obtained share, recovering their $88K loan from the proceeds, and giving you the rest -- their loan lasts for all of a fraction of a second).

    Allow me to interject here that you absolutely need to speak with a tax professional or financial planner very soon. I do not have the information or skills to provide individualized advise. There are huge tax implications with regards to exercising that many options, and these may amount to thousands (maybe tens of thousands) of dollars difference between doing things intelligently or haphazardly. It may throw you into a higher tax bracket where you start losing many deductions and/or trigger a nasty intrusion of the Alternative Minimum Tax. It might be too late to try to position some of your gains as long term capital gains (with a much lower tax rate), but maybe a savvy tax planner will see a way of doing it. Also, there may be some play to split the exercising between 2014 and 2015 to reduce the tax impact. I can go on speculating about your tax situation for a long time, but I think you see the point. This is really a time to shell out a few bucks and get a professional to develop your tax strategy.

    Dan.
     
  9. Shoham

    Shoham Member

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    Hello again:

    I try not to get suckered into talking about daily stock market fluctuations, but I'll try to address the overall connection between news and stock price.

    For Valeant:
    When the offer was first made, Valeant shareholders were under the impression that they will get Allergan and it's awesome balance sheet cheaply and easily making it a great deal for Valeant. At that time, every indication that Valeant is making progress was viewed as reducing the risk of the transaction failing and thus making Valeant shares more valuable. The market reacted to each piece of merger-positive news by pushing Valeant's price up (and, conversely, down on each piece of merger-negative news). The fact that Valeant is trading now below where it was immediately after the bid was announced, implies that Valeant investors now believe less in the deal than they did then (either less likely to happen, or less profitable if it does). Arguable, some Valeant shareholders are getting fatigued by how long and how expensive this is turning out to be (and how it is keeping Valeant from doing what it's investors think it does best -- friendly mergers), and might no longer be excited with every merger-positive bit of news. Some Valeant investors have even stated that if the deal is doomed to fail, the sooner it does so, the better -- and might actually start acting in the opposite direction (push Valeant shares up on merger-negative news and down on merger-positive).

    For Allergan:
    For those Allergan shareholders who wish the transaction to happen, this is simply an arbitrage question: How much, at the current Valeant share price is the offer worth (today: $169)? How much is Allergan trading for (today: $165)? Therefore, there is a $4 profit to be made by buying Allergan if the deal happens. Any merger-positive news reduces the risk of making this $4 profit, and therefore acts to push Allergan's share price up. Even for those Allergan shareholders who think the company will be better off independent, the Valeant offer, for as long as it would last, provides a negative price support -- meaning Allergan, as an independent company, is forced to perform such as to have it's share price exceed the value of the Valeant offer or else.

    Dan.
     
  10. Anonymous

    Anonymous Guest

    What do you make of the latest lawsuit filed by valeant. You can't make a deal til you vote on ours.
     
  11. Anonymous

    Anonymous Guest

    Hi Dan.. thanks a lot for all your time and effort in writing those posts.. they have been truly helpful in these difficult times (I work at one of the sites that is being shut down)..

    Although I am losing my job at the site I am working, I am being offered a move to Irvine for the same job. I wanted to know your opinion on how stable do you think AGN looks right now and whether it is advisable to stick to AGN. I know you have mentioned in many of your posts that you don't see the VRX deal going through and that is some kind of a relief. But, do you think it is worth the risk sticking to AGN and moving to Irvine?
     
  12. Shoham

    Shoham Member

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    In my post right after the Motion to Expedite (in the Federal court) was denied, I wrote:

    To play out the sequence of events to unfold:
    1. PS will claim to have gotten 25% of the shares signing on and asks for a special shareholders' meeting.
    2. Allergan says that the proxy is void since the requester (PS) is in violation of Insider Trading rules (even if he has enough shares excluding his own, to reach 25%).
    3. PS sues in Delaware Chancery, saying that Allergan has no right to stop a perfectly good proxy.


    It would seem that V+PS didn't bother waiting for #2 and went directly from #1 to #3 (in fact, accounting for time zone difference between CA and DE, they may well have sued a few hours before even delivering the proxies). This slight reordering probably won't make much of a difference, but might give Allergan an opportunity to score some minor points arguing that PS runs to the court to complain about actions Allergan hasn't even taken yet (even though everyone knows Allergan was about to take them). Allergan can ask the court to declare the suit premature because they haven't even had a chance to look at the filed proxies. If the first hearing is very soon, the court may well agree; otherwise, it probably won't. Allergan will look at the proxy and declare them void (per #2) which will bring us to where we all expect to be: The DE Chancery court deciding if the Shareholder meeting should be delayed on account of the Insider Trading Federal suit.

    So, no real news here, just going through the expected motions.

    Dan.
     
  13. Anonymous

    Anonymous Guest

    This is a risk/reward decision. Questions are:

    You are willing to leave the place you are now for the safety of a job
    Do you think, Valeant or not, AGN is stable enough for you to leave your place?

    If yes, go
    If no, look for another job

    Depending on the package you get, it might be good for you to start somewhere fresh.

    Good luck! It sucks that AGN is ruining perfectly good companies and workers while criticizing Valeant
     
  14. Anonymous

    Anonymous Guest

     
  15. Shoham

    Shoham Member

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    My wife is in the same boat. In our case, commuting to Irvine is an option until things resolve out (I already commute to Irvine -- working for another company -- so carpooling is also a possibility). But if you are too far and would need to relocate immediately, this is a tougher decision. My opinions are just opinions; there are some very smart investors betting the other way, and when it comes to uprooting a family; I would think you need to consider and be ready for all possibilities, and delay really major decisions (I wouldn't go around buying a house in Irvine just yet).

    Factors to consider:
    • What is the "package" if you accept the layoff now?
    • What are your employment options where you are now?
    • If you have a working spouse/partner, what are their options?
    • Are there kids? How will their lives be disrupted?
    • If Valeant wins, will you keep your job? (They said that they will keep substantially all customer-facing employees, spin off SkinMedica, continue DARPin research; and pretty much lay off everyone else. Their word is hardly golden, but at least it's a starting point)
    • What relocation help will you get?
    • What will your options be if you relocated and ended up laid off afterward?
    And, lastly and not leastly:
    • Do you like your job?

    [I don't know if this is any help, but it may be useful to organize your thoughts in an impassioned fashion]

    Dan.
     
  16. Anonymous

    Anonymous Guest

    Allergan just scheduled the special meeting for Dec 18
     
  17. Anonymous

    Anonymous Guest

    And, a version of step 2 just happend:

    Allergan requests block to Ackman, Valeant votes, announces Special Meeting date
    Allergan (AGN) announced that it has asked the United States District Court for the Central District of California to set an expedited schedule for discovery and a motion for a preliminary injunction against Valeant Pharmaceuticals (VRX), Pershing Square Capital Management, and its principal, William Ackman, for violations of the federal securities laws. In addition, Allergan announced that it will hold a Special Meeting of Stockholders on December 18, subject to confirmation by Allergan that the meeting has been validly requested in compliance with Allergan’s bylaws. Allergan has established an October 27 record date for stockholders entitled to vote at the Special Meeting. In its preliminary injunction motion, Allergan will seek an order barring Valeant, Pershing Square, Ackman, and entities affiliated with them from exercising any rights or benefits associated with Allergan shares that have been acquired unlawfully. Such an order would prevent Valeant, Pershing Square, and Ackman from voting their shares in any special meeting. Allergan’s proposed schedule would require expedited discovery to be completed in October, and would set a hearing on Allergan’s anticipated preliminary injunction motion in advance of the company’s Special Meeting. Should Allergan succeed in obtaining a preliminary injunction in its federal lawsuit, Valeant, Pershing Square, and Ackman’s shares will not be counted toward the special meeting request.
     
  18. Shoham

    Shoham Member

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    Bingo.

    I was amused, throughout the day, to read various headlines saying that Allergan, in selecting a date for the special meeting, is "buckling." -- before the news of the new filing was released. Succeed or fail, I think it's clear that Allergan is anything but giving up or slowing down.

    Allergan selected the last legally allowable date (ok, one day beforehand, just to force anyone who wants to claim it is using delay tactics to use a longer sentence) for the prospective special meeting, and immediately made it clear that it has yet to verify the validity of the meeting request. And, just in case anyone thinks this validation is a mere formality, Allergan made it clear that it doesn't think Ackman's shares should count (without those shares, no 25%, and no special meeting).

    Allergan is asking the Federal court to issue an injunction and again asking to expedite. The injunction is the heavy weapon here. The expedite, again, is just a sanctimonious pretension that it doesn't want to delay the special meeting if Ackman is cleared (when everyone knows it does).

    I'm not ready to handicap; this is uncharted legal territory, but I don't see why Judge Carter, who denied the expedite motion last week will think differently now. The question is if he will grant the injunction (which will be huge -- as it will effectively knock Ackman out of the equation, possibly for years), temporize (as he did with his last decision), or do something else.

    The temporizing option, when available, is usually what judges like; because it allows more events to play out that might modify or moot whatever decision they would have made -- thus sparing them the need to create controversy, precedents, or appeals. In this situation, a temporizing ruling would deny the injunction on the ground that the DE Chancery court is the best place to interpret the Allergan bylaws, but that if it is unable to determine the legality of Ackman's shares, Allergan is invited to return (this is not hugely different from the language the judge used when rejecting the expedite motion last week). Under this scenario, the DE Chancery court (which probably also loves to temporize), will likely find a way to toss the ball right back to judge Carter, for instance, by saying it lacks jurisdiction to determine Federal Insider Trading laws violation (never mind that DE Insider Trading Law violations are almost identical, and it *does* have jurisdiction to determine those -- but no one [yet] sued V+PS for violating DE Insider Trading Laws :)). Having the two courts ping-pong is just great for Allergan, because it creates big delays -- through no fault of Allergan -- in getting to the crux of the matter, which will need to be resolved before Ackman's shares can vote.

    Ackman is a master litigator, but uncharted legal territory is not where he is going to find speed.

    Dan.
     
  19. Shoham

    Shoham Member

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    Bingo.

    I was amused, throughout the day, to read various headlines suggesting Allergan is "Buckeling" or "Giving up." I think this filing, win or lose, makes it clear that Allergan still has plenty of fight in it.

    Allergan did select a meeting date (one day prior to the last legally allowable day), but then quickly added that they haven't yet verified the validity of the proxy request; and, just in case anyone thinks this verification is a mere formality, made it quite clear that they don't think PS shares should count (and without those shares, no 25%, and no special meeting).

    Allergan asked Federal Judge Carter to issue an injunction against PS from voting or otherwise using his illegally-obtained (according to Allergan) shares and again asked to Expedite the discovery. The injunction is the heavy weapon here. The expedite motion, again, is a sanctimonious pretension that they wouldn't want to hold up the special shareholder meeting in case PS is cleared (when, obviously, they do!). The best Allergan can hope for is that the injunction be granted (knocking PS out of the equation), and the expedite motion is denied (keeping him knocked out, potentially, for years).

    As we are on uncharted legal territory, I can't really handicap this play. My best guess is that the expedite will be denied -- I don't see why Judge Carter will think differently this week than he did last week. The big question is if the Injunction will be granted. If it is, this would be a huge, possibly terminal, setback for PS (Valeant may try to press forward, but without PS it would be mighty difficult). More likely, judge Carter will look for a way to temporize (judges love to temporize, particularly in fast moving situations, since whatever they are being asked to rule on may be rendered moot while they temporize; saving them the need to rule, risk being successfully appealed, and created needless precedents). {You can bet that if this happens, PS will file one expedite motion after another while Allergan will oppose every one of them -- with both sides, now having switched roles, using each other's prior language in their filings :)}.

    A temporizing ruling would be something like denying both the expedite and injunction, saying that they defer to the DE Chancery Court to interpret Allergan's bylaws, and leaving the door open to return if the Chancery court is unable to proceed appropriately. This is not hugely different from what Judge Carter said last week. The Wall Street Media, with Ackman cheer-leading and Valeant crowing, will declare this as a 3-out-of-3 win over Allergan, but it will be far from it! (Allergan will keep the pretenses up by appearing to put a brave face on the "loss" and meekly pointing out that the judge didn't give a final "no.").

    The DE Chancery, which also loves to temporize, will likely toss the ball back to the Federal Court, for instance, by claiming that they are unable to determine the legality of PS shares as they, being a state court, lack jurisdiction to determine if Federal Insider Trading Laws have been violated (never mind that DE Insider Trading laws -- which the Chancery Court does have jurisdiction over -- are effectively identical; but no one [yet] sued PS for violating DE Insider Trading laws).

    This potential ping-pong between the two courts would be just great for Allergan, as it will create delays upon delays, through no fault of Allergan. Since I don't see how either court will allow PS to take over Allergan (and shut down the lawsuit -- mooting justice to the victims) without first resolving the Insider Trading accusation, all those delays are to Allergan's benefit.

    Ackman may be a prolific litigator, but uncharted legal territory is not the place to find speed.

    Dan.