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Allergan wields axe to fend off Valeant

Plans to cut 1.500 jobs in sign of independence
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Allergan plans to cut 13 per cent of its workforce in a bid to cut costs resist an unwelcome $53bn takeover attempt by Valeant.

The restructuring will lead to the loss of around 1,500 jobs and another 250 as-yet unfilled positions in a bid to save $475m in 2015, according to the company, which has just reported a healthy 16 per cent increase in second-quarter sales to $1.83m.

The job cuts - coming on the back of the biggest quarterly sales growth in Allergan's history - reflects the pressure facing chief executive David Pyott as he tries to convince shareholders that their best interests lie in the company's continued independence.

The aim is to achieve a "major increase in earnings per share" over earlier forecasts, to $8.20-$8.40 in 2015 and around $10 the following year, Pyott told investors on a conference call yesterday.

The company's commercial operations look set to emerge from the process fairly unscathed, with only around 6 per cent of the sales force affected by the cutbacks for fear of impacting on near-term revenue growth.

"We committed to shareholders that we will be taking action to drive value both in the near-term and into the future," he said, noting the restructuring will not affect Allergan's ability to drive double-digit sales growth through 2019 or any ongoing R&D projects.

Future compensation rates for senior management will also be tied to earnings-per-share delivery, added Pyott, who also told investors that Allergan has "stepped up" efforts to seek out interesting acquisition opportunities, both large and small.

Valeant is also going on the offensive in its pursuit of Allergan, however, and filed complaints in the US and Canada this week over statements made by Allergan which suggested its business model of growth by acquisition and streamlining was fundamentally flawed.

Specifically, the Canadian company is concerned about claims made by Allergan that sales at its ophthalmic business Bausch & Lomb - acquired in 2013 for $8.7bn - have been "stagnant or declining".

"We can no longer tolerate unjustified attacks on Valeant's business," said Valeant's CEO Michael Pearson. "We are obligated to take action to protect Valeant shareholders from Allergan's apparent attempts to mislead investors and manipulate the market for Valeant stock," he added.

On the thorny issue of tax inversions - a feature in a number of ongoing and planned mergers involving US companies, including Shire's takeover by AbbVie - Pyott predicted that action will be taken by US lawmakers to block the practice.

The US Congress, "watching the mass exodus of US companies to lower tax jurisdictions, at some point will act, although I would take the view that that certainly won't happen in the next couple of months," he said.

Article by
Phil Taylor

22nd July 2014

From: Sales

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