Under-pressure Allergan backs a CEO-chairman job split—just not right now

Amid investor pressure to split up its CEO and chairman roles, embattled Allergan is giving in—but only a bit.

Allergan will support an investor resolution to split up the jobs, the company said on Tuesday, shortly after hedge fund manager David Tepper renewed his demand that it do so. The catch? The split wouldn't happen until Allergan's next CEO rotation—meaning current CEO and Chairman Brent Saunders would keep wearing both hats.

That wasn't enough for Tepper, who once again blasted Allergan's board after Tuesday's announcement. The latest move "falls short of improved governance and once again lays bare your reluctance to hold management accountable for its dismal performance," Tepper wrote.

Saunders and his current board are responsible for more than $13 billion in balance sheet write-downs in 15 of the last 16 quarters, Tepper argued, plus "embarrassing legal initiatives," a "failed acquisition strategy resulting in an underperforming product pipeline," a lower stock price and "stunningly excessive" management compensation.

"That the board believes a toothless resolution will even begin to address these issues speaks to your subservience to the management team you have compensated so lavishly," the investor wrote.

Further, Tepper wrote that Allergan's board has a duty to consider a merger or sale if it can't "hold management accountable" for the performance.

The company on Tuesday responded that it "strongly" disagrees an immediate separation of the roles is warranted. Such a change would be disruptive, Allergan says, while its proposal allows for a smoother transition.

"Allergan's Board of Directors firmly believes that the current combined Chairman and CEO role, together with a strong Lead Independent Director role, our slate of highly qualified independent directors and robust governance policies, provide effective oversight and best position Allergan for long-term success as the company executes its strategy," a spokeswoman said. 

Tepper has repeatedly advocated for change at Allergan. In a letter early this month, the hedge fund manager wrote that a "growing majority" of S&P 500 companies split their CEO and chairman jobs, and 40% of Allergan shareholders recently voted to split up the roles "despite little fanfare or support from an organized campaign."  

Still, the company resisted, which Tepper said was worrisome considering Allergan's struggles in recent years. The company's shares are down about 50% from a peak in the summer of 2015.

Among Allergan's recent problems, the company this month rolled out 2019 sales guidance lower than analysts had projected, and disclosed it's canceling a previously planned sale of its women's health unit. The drugmaker in 2017 made itself the center of controversy with a patent licensing tactic that involved a Native American tribe, and it now faces competitive threats to top sellers Restasis and Botox.

Allergan’s latest announcement came along with news that former Celgene CEO Bob Hugin is joining the company’s board after a failed run for a U.S. Senate seat. Hugin, an influential pharma executive, is the sixth new director at Allergan since 2017.

Meanwhile, Hugin’s former company is making headlines with its decision to accept a $74 billion buyout bid from Bristol-Myers Squibb. The combined company would be a leader in oncology, cardiovascular diseases and inflammatory diseases, executives have said. Announced early this year, the Bristol-Myers/Celgene deal would be one of the biggest pharma mergers of all time.

Register as Visitor to CPhI China 2019!