The Allergan Board under Fire Harvard Case Solution & Analysis

The Allergan Board under Fire Case Study Solution

Introduction

Allergan was founded in 1950 to sell eye care products only, but because of the small and limited growth in the eye care products, the company entered into the skin care products category. It has successfully achieved success on its brand Botox that was also approved by the FDA to be used for cosmetic purpose. Botox became the only product of the company that brought around $80 million sales.

Company has huge growth into the market since new CEO David Pyott took over the leadership. He consistently managed to cut the administrative and sales expenses and increase revenues to improve the bottom line. His new and disruptive approach to market, and focus on the research and development in the company contributed great value for the company in the market.

The Botox as a primary product approved by the FDA to use it in different categories such as chronic migraine, overactive bladder, and muscle spasms and for 25 other conditions worldwide. Meanwhile, Botox contributed $1.8 billion in net revenues of the company as of 2013, and second primary product sold worldwide by the company was Rest as is that contributed around $940 million in net revenues.

The Allergan Board under Fire Harvard Case Solution & Analysis

There were many growth opportunities for the company to expand, but the vision of the company was to strategically evade the market with leaving no impact on the company and on the acquirer. So, it has prepared for many possible mergers and acquisitions transactions that will allow the company to grow into the market.

Background

As in 2006, Allergan acquired the world’s second largest makers of breast implant which was used for facial skin filler that was licensee of the North American Juvederm. The company has been using the potential R&D to create value and opportunities that it could utilize into the market.

The company had five strategic pillars of product categories that it was offering, and sixth was under consideration which was to include the gastrointestinal franchise that was supposed to be sixth pillar of the company. So, it can be determined that company has two important steps one to diversify a portfolio of products and second to focus on the research and development.

Furthermore, the growth of the Allergan was well perceived by the competitors into the market because the value through the synergies of Allergan and acquirer would be unmatched. Thus, Valeant was bidding for the company through a doubtful way that could be questioned. However, the Valeant has sent proposal to acquire Allergan for $46 billion in cash and plus 0.83 shares of Valeant for each stock of Allergan.

The proposal was under discussion for weeks that distrusted the whole board and they were all in the dilemma of what to choose, and what to do with the proposal given by the Valeant because, there were some situations that could have exploited the brand recognition of Allergan and might affect the company as a whole.

The decision was to be taken by the board to either accept the proposal based on the given conditions, and would it create value for the shareholders and is the Valeant able to swallow the large company expanded worldwide? And, if the bid was accepted given their posture and gesture to acquire the firm would it be legal.

Proposed Bid (Proposal)

Company’s Background

The Valeant has been one leading seller of the antibacterial and antiviral drugs throughout 100 countries worldwide. As, Pearson took over the leadership, he developed three elementary plans; one to focus on the product development geographic expansion, second acquisition and merger, and third cutting the costs of the R&D. Pearson only focused on acquiring the developed product companies that were already operating into the market.

It enabled the company to cut the costs of R&D, reduce the expense through synergetic effect, and have geographic expansion. It fulfilled the three elements of Pearson’s plan. Therefore, Pearson focused on the developed product companies. However, the proposed bid of Allergan was also part of increasing geographic presence and cutting the costs of R&D completely because Allergan had put 19% of its revenues on R&D.

Proposal

Valeant proposed a bid to acquire the Allergan. It proposed board to pay $46 billion for the acquisition, and $48.30 in cash plus 0.83 shares of the Valeant stock for each share of Allergan. The deal surprised and was very attractive to many of the board members. However, the past history of Valeant did not support the bid itself where many board members questioned Valeant for its performance into the market, and for wholly depending on merger and acquisition to create value and income for the shareholders.

Meanwhile, the Valeant is the leading manufacturer of the antiviral and antibacterial drugs worldwide but, it has not expanded so far, it has depended on the acquisitions and merger previously to improve its revenues and create value for the shareholders. So, it was also a concern for the company that would Valeant be able to swallow a large company like Allergan................

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