Allergan and its under-attack chief executive and chairman Brent Saunders has received some welcome support again what it calls ‘dissident’ shareholders.
The specialist pharma company is being pressured by hedge fund manager Appaloosa to split out the roles of CEO and chairman, both currently held by Saunders, a move which it says is necessary to make the management of the company more transparent and shake up its boardroom strategy.
Last month Appaloosa said that the status quo was “unacceptable” and that “disruptive measures are necessary for shareholders to convince this board that it must make the decisions required to fix the company or, if they are unwilling, sell it to a more capable acquirer or merger partner.”
The hedge fund manager is speaking out because Allergan has suffered numerous setbacks in its business strategy over the last few years, reflected in its share price having fallen by more than 50% since it peaked in 2015.
CEO and chairman Brent Saunders
After its $160bn merger with Pfizer was called off in 2016, the company has struggled to find a new growth strategy.
These struggles were compounded last month when it announced the phase 3 failure of its brightest pipeline hope, depression treatment rapastinel.
The news added to existing headwinds for the firm. It recently revealed a write-down $1.6 bn in relation to its chin-fat injection Kybella, has called off the sale of its women’s health unit and face competitive threats to top sellers such as Botox.
These setbacks have emboldened Appaloosa to table a non-binding shareholder proposal to split the CEO and chairman roles, with a crunch vote set to take place at Allergan’s annual shareholder meeting on 1 May.
However, ahead of the shareholder meeting, Allergan has been boosted by support from two other investors, independent proxy advisory firms, Institutional Shareholder Services and Glass Lewis & Co.
Both organisations have recommended to shareholders that they vote for all of Allergan’s proposals and against Appaloosa’s call for the immediate separation of the roles.
Allergan has sought to reach a compromise which would involve the separation of the roles once Saunders steps down – but as no date has been put on his departure, Appaloosa has dismissed this as plan as unsatisfactory.
However, despite its claims to be a major shareholder, the hedge fund manager holds a smaller stake than many other institutional investors. The vote on 1 May is also non-binding, which would make any shareholder rebellions easier to resist.
Allergan has also taken other measures to placate investor sentiment, including assembling a new a new M&A committee led by former Celgene CEO Bob Hugin. The company also revealed that it has slashed the pay package for Brent Saunders, cutting his compensation to $6.6m for 2018—a fraction of the $32.8m he was awarded the previous year.
These initiatives have done nothing to appease Appaloosa, and Allergan will hope it can survive the challenge on 1 May and then look to some short to medium-term fixes of its own.