AbbVie-Allergan deal

On June 25, AbbVie (ABBV) announced that it plans to buy Allergan (AGN) for ~$63 billion. At 10:20 AM ET, Allergan stock rose 27%, while AbbVie stock fell 15%. The transaction entails Allergan shareholders receiving $188.24 in cash and stock for each Allergan share. The transaction implies a premium of 45% over the stock’s closing price on June 24. The deal would reduce AbbVie’s reliance on its blockbuster treatment, Humira, which faces competition from cheaper versions in Europe.

Tepper called for Allergan’s split

Activist investor and Appaloosa Management’s president, David Tepper pressured Allergan to consider selling itself if it couldn’t save its lagging performance. Tepper urged Allergan to separate the roles of chairman and chief executive. Allergan stock has lost ~24% in the last year. The stock underperformed the S&P 500 (SPY), which gained 8.4% during the same period. Drug trial setbacks and competition from generic versions contributed to the stock’s lagging performance.

Will Tepper be happy?

Most of the analysts think that the transaction is a win-win for Allergan shareholders. As reported by CNBC, Cantor Fitzgerald analyst Louise Chen said that the deal is a better-than-expected outcome for Allergan investors and analysts who expected a split. Bloomberg reported that the deal would imply a gain of ~$87 million. Seth Klarman’s Baupost Group could lose ~$100 million. Since Tepper wanted Allergan to sell itself, the deal should be good news. However, we still don’t know if he will be pleased with the transaction price. Bloomberg reported that Appaloosa representatives weren’t available to comment.

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