Allergan to cut 13 percent of jobs in fight against Valeant
(Reuters) - Allergan Inc, which is fighting a hostile bid from Valeant Pharmaceuticals International Inc, said on Monday it would cut 13 percent of its workforce as part of a restructuring meant to boost profits over the next six years.
The maker of anti-wrinkle drug Botox said the cost reductions, part of its efforts to convince investors that it is a better value as a stand-alone company, would help increase annual earnings more than 20 percent per year between 2014 and 2019.
Valeant and Pershing Square Capital Management made a $52 billion hostile offer for the company in April, but Allergan says the deal would hurt its growth and is not in the best interest of shareholders.
The 1,500 job cuts were more than the 5 percent to 10 percent that JPMorgan analyst Chris Schott expected, and he said Allergan therefore deserves a higher valuation.
The restructuring, which would create savings of $475 million in 2015, would also eliminate about 250 vacant positions.
It would ensure earnings in 2016 of about $10 per share, excluding special items, well above Wall Street expectations of $8.14 per share.
"Valeant has been saying they’ll cut costs when they take over Allergan, and Allergan is now essentially saying, ‘We can reduce our own costs,’" said Morningstar analyst Michael Waterhouse.
Allergan is weighing strategic options to counter Valeant, including stock buybacks and acquisitions.
Allergan Chief Executive David Pyott, in a conference call with investors on Monday, said it would be difficult for Allergan to buy companies with the types of products it now sells - which include dermal fillers, breast implants and prescription eye drugs - because Allergan is already a dominant player in those markets.
Allergan is interested, however, in buying one or more different types of businesses which would become "new pillars" of the company, Pyott said.
But activist shareholder Bill Ackman, who heads Pershing Capital, said on CNBC that such acquisitions by Allergan would be "desperate" moves and that Pershing Square would sue Allergan if such attempts were made. Shares of Allergan rose 2.6 percent, while shares of Valeant rose 3.5 percent. David Maris, an analyst with BMO Capital Markets, said some investors may have bought Valiant shares to cover short positions.
Allergan, which emphasizes research spending, said the restructuring would not reduce projects now in human trials.
Valeant typically slashes research spending at companies it acquires, and it has vowed to do the same at Allergan.
Separately on Monday, Valeant said it had complained to financial market regulators in Quebec and the United States about "false and misleading statements" that Allergan has made about its business.
The two sides are fighting for shareholders' votes even as those investors are buying and selling stakes. Hedge fund Paulson & Co bought more than 6 million shares of Allergan, sources told Reuters last month. On Monday, the Wall Street Journal reported that Capital Research and Management had sold off almost all of a stake that once exceeded 6 percent.
Allergan expects earnings of $5.74 to $5.80 in 2014 and $8.20 to $8.40 in 2015. It had previously forecast a 2014 profit of $5.64 to $5.73 per share, with earnings growth of 20 percent to 25 percent in 2015.
The company reported second-quarter earnings of $418 million, or $1.40 per share, compared with $361 million, or $1.22 per share, a year earlier.
Excluding special items, Allergan earned $1.51 per share. Analysts on average expected $1.44, according to Thomson Reuters I/B/E/S.
(Reporting by Caroline Humer and Ransdell Pierson; Editing by Lisa Von Ahn and Phil Berlowitz)