NEW YORK (Real Money) -- I have to rethink my concerns about what happens if Valeant (VRX) walks away from Allergan (AGN). In preparation for my interview with David Pyott, the CEO of Allergan, I took a look at what all of the other drug companies' stocks have done since the bid, and the answer is pretty much a big fat zero. So I figured the stock would go back to where it was while Ackman's Pershing fund was buying it up but before the offering was announced.
After listening to Pyott last night, I now think it can be higher; not necessarily as much as it is now, because you will always have disappointed arbitrageurs, but up enough that the risk reward is better than I thought.
Pyott is saying that he can do a huge restructuring to bring out value or undertake a value-creating acquisition. I don't know whether the market will like the latter, unless it is an inversion. The former could be well-received.
Nevertheless, it is hard to think about how you can stop Valeant-Ackman, given that the egos on the line here, both Bill Ackman's and Mike Pearson's, are so huge and the desire so incredible and the need to win Allergan so important, that there doesn't seem to be a price that Valeant won't pay.
The question for me is: Will David Pyott be this year's Peter McCausland? The former CEO of Airgas (ARG) was able to use Pennsylvania takeover law to just say no to a hostile bid from Air Products (APD), while promising that the company could create much more value than the acquirer could.
Peter was right, as it turned out that Air Products truly had launched a low-ball bid, taking advantage of a momentary dip in the numbers from the Great Recession, and Airgas' stock soon soared well above the failed bid price.
Peter was the founder and a 10% holder of stock, so his pleas were well-heeded because he seemed totally aligned with the shareholder base. I think, despite Ackman's charges to the contrary, Pyott is too, although he doesn't have that kind of stake in the enterprise. Unfortunately for Pyott, this isn't a Pennsylvania "just-say-no" situation, so the comparison may be moot anyway.
The numbers have gone up of late at Allergan, and the analyst community is now confident that the stock is not all that expensive.