The Allergan Case; Author: R. Yazdipour, Ph.D.; Copyright ©

| June 2, 2016

Question
The Allergan Case
Author: R. Yazdipour, Ph.D.
January 1, 2015; updated June 15, 2015
DISCLAIMER and UPDATE: The present case involves three major players as stated in below is
a real-life case taking place in late 2014 and continuing, albeit in a different direction, in 2015.
However, in this case Allergans story is somewhat modified so that a teaching assignment in the
form of the present case could be created. Also for the same reason and from a legal perspective this
case is rather simplified as this is not a legal case; it is a finance case.
UPDATE: Allergan was recently acquired by Actavis: http://www.latimes.com/business/la-fiallergan-sale-to-irish-company-closes-story.html
R. Yazdipour, Ph.D., February 2015
**************************************************
A Notes to All Students.
1. As a team of soon-to-be Finance MBAs who have especially learned the key tenets and
applications of Behavioral Finance in this class, consider the following information regarding
Allergan and answer the specific questions that follow. Let me also add that this is a Group
Assignment, so wherever in here I use the word you and/or your, I usually mean you as a
Group/Team in this assignment. This also means you, as a member in your assigned Group,
are expected to completely work with your team mates and do your acceptable share of work;
acceptable to your assigned Group and acceptable to me as your instructor/coach. Individual
grades may be different from Group grades to account for what I just stated.
2. As stated in above, Allergan was acquired by Actavis and sale was finalized in early 2015.
However the focus of this case, and focus of your analysis for this case, is on the time
periods when Allergan was still an independent company and was fighting not to be
acquired by Valeant Pharmaceuticals and Hedge fund Pershing Square as describe in
Part 1 in below.
THE ALLERGAN CASE ASSIGNMENT
PART 1. Background and a Brief Description of the Assignment. The law firm of LABC in Los
Angeles has hired you as a consultant to utilize and apply especially your knowledge of Behavioral
Finance in a legal case it is currently handling; the Allergan Case (AGN) as described in in this
assignment and as you can learn more about it via this URL: http://www.allergan.com/home . Your
employment contract however specifies that you will work with AGNs in-house legal department
and under the direct supervision of its managing attorney, Ms. Jennifer Brown. The reason for
placing you at AGN is an operational reason; it makes it easy for you to have access to any
authorized corporate information, as well as access to the senior management; all under direct
supervision of Ms. Brown. .
Specifically, LABC is preparing to challenge in court the hostile takeover of Allergan by two
acquirers that reportedly continue to work with each other to take control of the biotech company;
1

The Allergan Case; Author: R. Yazdipour, Ph.D.; Copyright © 2015
they are Valeant Pharmaceuticals International Inc VRS:
http://finance.yahoo.com/q/pr?s=VRX+Profile and its reported partner, Hedge fund Pershing Square
Capital Management:
http://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=12722532 .
Moreover, LABCs legal defense includes, but not limited to, disqualifying both hostile suitors using
any legal manner applicable and possible. Defense strategies can be envisioned and finalized for
possible use under two categories, Legal Arguments and Financial/Economic Arguments. For the
purpose of this assignment, lawyers would provide the purely legal arguments; so you do not need to
be concerned about the legal issues of the case. Instead, you will research, prepare, and present in
needed details to Ms. Brown a set of financial/economic arguments that she could submit to LABC
as part of LABCs legal arguments against the two hostile suitors.
PART II. More on the Financial/Economic Arguments. First and for clarification purposes,
Financial/Economic Arguments can be drawn from both the Traditional Finance (TF) theories and
concepts/models; as well as the Behavioral Finance (BF) theories and concepts/models. BF refers to
all knowledge that you have learned as a result of taking this class and by the time of the submission
of this assignment. TF refers to other finance knowledge that you have learned outside of this class.
Examples for TF knowledge include Market Efficiency, CAPM, Shareholder Maximization
Stakeholder Maximization, etc. Examples for BF Prospect Theory and especially the way it provides
a human-based framework for decision making by all individuals especially in the business world. I
emphasize the Human Factor, which if you think about it you will find it is one of the two main
factors in any Wealth Creation attempt by us; the other being Capital. The human side of your
arguments may in fact tilt the judges and jurors decisions in any M&A litigation case involving
M&As and especially hostile takeovers like the present case- Allergan. So if there is a challenge in
this assignment is what I just mentioned:
A. Researching;
B. Preparing; and at the end,
C. Presenting financial/economic arguments that center around both the Human and Capital
factors that are the two main building blocks of Value or Wealth.
And remember, the main goal of any corporation is Wealth or Value Creation and not Destruction.
PART III. The Assignment- what you need to do and what to submit. Well, the above as clearly
stated in the form of A, B, and C, is your assignment. In other words, prepare and submit for grading
a set of Financial/Economic arguments that can be used by AGN in the court of law and as
represented by your employers, the LABC law firm.
SUBMISSION. Follow all instructions related to the Group Project component of your syllabus and
submit. Page Limit: 10 pages, double-spaced, Times New Roman, size 12. There is no limit on
Appendix.
END.

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