(Adds comments from Allergan CEO and Bill Ackman)
By Ransdell Pierson and Caroline Humer
July 21 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
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
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
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
(Reporting by Caroline Humer and Ransdell Pierson; Editing by
Lisa Von Ahn and Phil Berlowitz)