In 2014, pharma firm Allergan learned of two US Securities and Exchange Commission filings that placed it in the crosshairs of Pershing Square Capital Management LP, an activist shareholder, and Valeant Pharmaceuticals International, Inc., a hostile acquirer.
The move surprised Allergan – it had increased revenue by 12% and had a 90% shareholder return in 2013. Moreover, its flagship product was growing at double-digit rates, and it had recently divested a struggling business to free up resources.
However, the company’s allocation of 17% of its total revenue to R&D and 38% to selling, general and administrative expenses were considered high, while its tax rate was 8.5 percentage points higher than the average for similar companies. In addition, it held roughly $1.6 billion in cash on its balance sheet and little debt – meaning it had substantial reserves waiting to be deployed.