Allergan activists, ready for 'disruptive action,' call for split, sale, executive changes

After Allergan revealed Wednesday that a major pipeline prospect had flunked a phase 3 trial, analysts predicted activist investors demanding change would ratchet up pressure on the company’s executives. And it didn’t take long for those activists to prove them right.

On Thursday, Appaloosa—which has had the heat on Allergan since last year—issued a statementreiterating its call for the company to split its CEO and chairman roles, both currently held by Brent Saunders, in light of depression treatment rapastinel’s phase 3 slip. But this time, it went even further.

The hedge fund views a chairman swap as just "one in a long list of difficult decisions the board will need to confront." That list also "may include a change in senior management, separation of business units, merger or sale of the entire company," Appaloosa said.

Those ideas won’t surprise those who have been following Allergan analysts lately. Earlier this week, Bernstein’s Ronny Gal read between the lines of Appaloosa’s request for a new chairman and spelled it out clearly for investors.

"There is no such thing as ‘censuring’ a CEO’s business performance; splitting the role now amounts to letting" Saunders go, he said, adding that pushing for governance "in this case is a convenient way to argue for leadership change given stock performance."

Meanwhile, RBC Capital Markets’ Randall Stanicky has been lobbying for splitting up the company since late 2017, which he reminded his own clients this week. "Our break-up thesis now set to gain traction?" he subtitled his investor note.

That’s not to say Allergan analysts agree that dramatic action is necessary to turn shares around. The team at Leerink Partners still believes "that the stock doesn’t reflect the durability and strength of the base business (especially Botox), and thus we think the stock without this type of change can still move higher over the year," Marc Goodman wrote.

And Bernstein’s Gal has said that "our view is that current leadership is not error-free, but [many] of the issues facing the company stem from independent factors."

Appaloosa, though, is having none of it, and it’s ready for major changes ASAP.

"The board’s misplaced fear of ‘disrupting’ Allergan is wearing thin as an excuse for inaction and can only perpetuate further erosion in the shareholders’ investment. In fact, disruptive action is entirely warranted under these circumstances," it said.

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