It Looks Like Bill Ackman Has Another War On His Hands

On Tuesday pharmaceutical company Allergan filed a presentation with the SEC trashing Valeant - the company trying to acquire Allergan with the help of hedge fund manager Bill Ackman. He has an almost 10% in both companies to help this process along.

Ackman or no Ackman, Allergan's board still must be persuaded.

So this morning, Valeant increased the cash component of its bid for Allergan by $10, to $58.30 per Allergan share, and struck back on a webcast accompanies by a 176 page presentation (if that's not Ackman style, what is?).

Think of this like Ackman and Valeant stunning their prey before swallowing it whole.

The song and dance was necessary. After Allergan's presentation, Valeant had a lot to answer for. In short, Allergan said that Valeant is a company with little to no organic growth that hurts the companies that it acquires, in part, by slashing their R&D budgets to bits.

One powerful slide in the presentation argued that - since Valeant acquired Bausch and Lomb - the latter is only growing due to unsustainable price increases. Sales have actually fallen.

Worse than that, Allergan accuses Valeant of being an accounting shenanigans. Specifically - it accuses Valeant of being a rollup, a company that uses aggressive acquisition accounting to hide its lack of revenue.

The problem with a rollup is that when a company stops being able to make acquisitions it can completely fall apart. For those who believe that Valeant is playing this game, that is why it's insisting on buying Allergan and upping its offer price, even though in an interview earlier this month Valeant's CEO said the company would do no such thing.

Allergan is not the only one saying this. President of Kynikos Associates, short-seller Jim Chanos, says the same thing about Valeant's accounting. He's identified these issues in the past too, in companies like Tyco.

Allergan put this Chanos quote in its presentation:

"We're short [Valeant] because it's a rollup. Androll ups present a unique set of problems," said Chanos on CNBC earlier this month. "Roll ups are generally accounting-driven, and we certainly think that's the case in [Valeant]. We think [Valeant] is playing some very aggressive accounting games when they buy companies, write down the assets, and also engaged in what we call spring-loading."

That's basically as bad as your mother saying she doesn't like your girlfriend.

So for the K.O. Allergan ended its presentation with this slide about what it gets out of being acquired (headaches).

To counter all this, Vealeant CEO Michael Pearson said this morning that Allergan's presentation is "misleading."

He says that his company does have a focus on R&D, and that its organic growth has been hidden by the fact that generic versions of some of its major products just hit the market (not a problem that's going away, to be fair).

As for B&L, Valeant said that expects B&L's revenue to grow 10% in 2014.

But this is what one executive called "the money slide." The slide that shows that Valeant completely turned around OraPharma, another pharmaceutical company that it acquired in 2012.

All this drama ultimately boils down to one question no matter what anyone says - If you were an Allergan shareholder, which side would you believe?