The daily war of words between Valeant, the upstart Canadian pharma giant, and Allergan, the maker of Botox that Valeant is trying to buy in a hostile takeover, could make any investor’s head spin.
But imagine what it’s like to be a client of Bank of Montreal, where two analysts who work out of BMO Capital Markets’ New York offices in Times Square find themselves on opposite sides of one of the most controversial takeovers in memory.
Valeant has launched a $53 billion hostile bid for Allergan with the support of activist Bill Ackman, who took a 9.7 percent stake in Allergan before the effort was announced — a controversial move on its own.
In an unusual internecine spat, the BMO analysts are taking opposing views of the battle.
David Maris, BMO’s Allergan analyst, has been the most outspoken bear on the deal and, by extension, Valeant and Ackman.
In recent reports, Maris has compared serial acquirer Valeant to Al Dunlap, famous for cooking Sunbeam’s books. He also suggested Ackman might be lying when the hedgie said he had the support of six of Allergan’s top 10 shareholders after meeting with them.
“Since that meeting was not broadcast, this is Mr. Ackman’s own personal interpretation of the conversation,” Maris wrote on June 2.
The deal, Maris has said repeatedly, has less than a 50 percent chance of completion.
Maris’ harsh words must make for uncomfortable morning meetings at BMO, since his colleague Alex Arfaei follows Valeant and defends its business model, well, valiantly.
When reports surfaced that hedge fund billionaire John Paulson had taken a 2 percent Allergan stake and sided with Ackman and Valeant, Arfaei dashed off a note Thursday morning gleefully noting that the company is closer to the 25 percent of shareholders it needs to call a special meeting to change Allergan’s board.
In contrast to Maris’ view that the deal likely won’t happen, Arfaei said that “given the 50 percent overlap” in shareholders of the two companies, “We believe that most Allergan shareholders are familiar enough with Valeant’s business model to invest in the combined entity.”
Other analysts seem to agree with Arfaei: A survey by JPMorgan found that two-thirds of shareholders expected a deal to happen. Some 80 percent of the stock has changed hands since it hit $160, and those investors definitely want some sort of deal.
Maris now says that Allergan stock is worth more than $200 per share on its own — although it was trading at $116 before Ackman started amassing his stake.
Arfaei, like most other analysts and shareholders, thinks there is a big takeover premium in the stock, which closed Friday at $173.95. The current value of the Valeant stock-and-cash offer is about $179 per share.
After Allergan (and Maris) said the company’s new earnings outlook justified the higher stock price, Arfaei expressed skepticism: “Given the stock’s reaction following Valeant’s offer, we believe most investors would disagree.”
Having two analysts in the same bank with such diametrically opposed views on a deal is almost unheard of, several analysts said.
“It’s unusual,” said David Steinberg of Jefferies, “but this is a unique hostile takeover attempt.” (Steinberg, who follows both companies, thinks the chances of a deal being consummated are greater than 50 per cent.)
But the weirdness of Bank of Montreal’s situation doesn’t end there.
BMO Financial, the bank’s asset management unit, is also one of the largest shareholders of Valeant, according to the most recent regulatory filings. They indicate that the bank owns almost 8 million shares, making it Valeant’s eighth-biggest shareholder.
The Canadian bank and Valeant — which changed its headquarters from the US to Quebec after merging with Canada-based Biovail — even share a board director.
Maris didn’t like Biovail, either.
In another six degrees of separation connection, it turns out that long before a troubled Biovail merged with and was cleaned up by Valeant, Maris became embroiled in a dispute with Biovail while working for Bank of America.
The dispute centered on Maris’ sell report on Biovail — which triggered a 2006 lawsuit by the pharmaceutical company against the outspoken analyst and BofA.
At BofA, he also criticized Bausch & Lomb, then under siege for accounting and executive pay issues. Years later, that company was also bought by Valeant.
Maris was let go from BofA at the end of 2006, shortly before the suit was dropped.
The veteran pharma analyst joined BMO 18 months ago.
Although he has been widely quoted on the Valeant and Allergan battle, Maris said he could not comment on the record to The Post.
Arfaei and Bank of Montreal also declined to comment.