Allergan has reiterated its concern regarding Valeant Pharmaceuticals International’s unsustainable business model, which relies on serial acquisitions and cost reductions, as opposed to top-line revenue growth and operational excellence.
John Hempton, chief investment officer, Bronte Capital said: "There is a possibility that the whole Valeant exercise is something from the Wizard of Oz. Profits are going up nicely if you pay no attention to that man behind the curtain — the man being the large restructuring and one-time items."
Vicki Bryan, senior high yield analyst, Gimme Credit commented: "Valeant's strategy depends on people continuing to drink this Kool Aid it's serving… They have to keep buying at a heavier and heavier and more expensive pace to keep this up. What happens when they can't? There's no inherent growth, and the debt side of this is a very big part of the story that the stock market is ignoring."
According to Jim Chanos, president and founder, Kynikos Associates CNBC Fast Money Halftime Report: "We're short because it's a roll up and roll ups present a unique set of problems. Roll ups are generally accounting-driven, and we certainly think that's the case in Valeant. We think Valeant is playing some very aggressive accounting games when they buy companies, write down the assets. But really, for us, and we were short before the Allergan announcement, a roll up is a roll up and you have to analyze a company that's not growing organically and has to deliver value by doing bigger and bigger acquisitions, and usually the companies do an acquisition too far."
In addition, executives from Morgan Stanley, the investment bank understood to have recently been retained by Valeant, have sent emails directly to Allergan's management team that suggest they share the concerns of Allergan and the above third parties.
As announced on June 10, 2014, Allergan's board of directors, after consulting with its independent financial and legal advisors, unanimously determined that the re-revised unsolicited proposal dated May 30, 2014 by Pershing Square Capital Management and Valeant substantially undervalued the company, created significant risks and uncertainties for the stockholders of Allergan, and was not in the best interests of the company and its stockholders.