It was announced last night that activist investor Bill Ackman of Pershing Square Capital Management and Valeant Pharmaceuticals were teaming up in an attempt to takeover Allergan. Allergan, which is one of our larger growth holdings, was up 6% yesterday and is currently up another 15% today, as of this writing.
I love a takeover offer because it confirms my view that the stock was undervalued and worth owning. I’ll typically sell the position after it pops on the announcement, like earlier this year with Beam Inc., because these deals can take months to close and I’m just fine taking the accelerated gains and moving on to the next opportunity. There’s also always the risk of the deal falling apart, in which case the stock would trade lower again. This one is a little different though.
I sold a small amount today to bank some of these gains, but I’m planning on holding the rest for a couple reasons:
- The proposed offer is not strictly for cash. The deal would pay $48.30 of cash and 0.83 shares of Valeant stock for each share of Allergan owned. I wouldn’t mind eventually owning Valeant because the merged company would be a powerhouse in the skin and eye care business – Allergan is the maker of Botox and a few other eye related drugs; Valeant has a few of its own products along with the Bausch & Lomb brand which it bought last year
- Allergan may turn down the offer if it feels it’s not enough, which could lead to an even higher offer from Valeant, or
- Another bidder could step in with an even sweeter offer
This is a prime example of why I believe it’s worth doing your homework to invest in individual stocks. You may have noticed that a lot of the stocks I buy are potential takeover targets (see here and here, for example).
We’ll see where things go from here with the deal. Should be interesting…
-Nick
Allergan (AGN) – 1 year
Valeant Pharmaceuticals (VRX) – 1 year
