Allergan employees, Irvine officials worried over Valeant offer

Wall Street sharks are not the only ones keeping a close watch on the contentious battle for control of Allergan Inc., the Irvine company that makes Botox. So are thousands of the company’s scientists and researchers, many of whose jobs may be at risk.

The protracted takeover attempt is also a worry to Irvine merchants, who fear that an exodus of highly paid workers could hurt business. Even the city’s mayor is getting involved, saying it’s his duty to try to protect jobs in the suburban city of about 230,000 residents.

Canadian company Valeant Pharmaceuticals International Inc. is trying to buy Allergan — one of Orange County’s biggest employers — in a $53-billion deal that has become the talk of Wall Street.

Valeant has not been silent about its acquisition plan. Its chief executive has been outspoken in suggesting the Allergan is fat, overstaffed and ripe for big cuts to its research and development team. On top of that, Valeant says, Allergan could receive significant tax savings with corporate headquarters in Canada.

In response, Allergan says that its research and development efforts are vital to the company’s long-term profits and that slashing spending would be shortsighted.

The Irvine company appears to have adopted a siege mentality — rejecting all offers, maintaining a low public profile and instructing its employees to stay quiet. There is also worker angst on the sprawling Allergan campus east of John Wayne Airport, and nagging concerns are apparent.

“Of course we’re worried,” said one of the company’s legion of R&D employees, who asked not to be named because he was not authorized to talk to the media. “They said it from the beginning, they’re going to cut research. And we’re a research company.”

The takeover fight is hitting home in Irvine.

“I am very concerned. I will do whatever I can to help them,” said Irvine Mayor Steven Choi, who met with Allergan’s CEO this month to discuss the takeover fight. “Everyone talks about job creation. Retaining jobs is equally important.”

Choi said he told Allergan CEO David E.I. Pyott that he would write letters to members of Congress to express his concerns about the potential buyout and ask if there’s anything that can be done to stop it.

City Councilman Larry Agran said Irvine has a responsibility to try to protect one of its oldest and largest employers.

“The immediate economic and human effect would be devastating in many ways,” Agran said. “Any time you lose high-tech employees, in those kinds of numbers, it brings about tremendous dislocation and even hardship to thousands of families with rippling effects throughout the county.”

Allergan has a rich history in Irvine. In fact, Allergan was in Irvine before there was an Irvine. The company was founded in 1950 and originally focused on eye-care products before acquiring the rights to wrinkle-erasing Botox, its top-selling product.

The company has employees spread around the world, including at a newly opened facility in New Jersey. About 2,300 of Allergan’s 11,000-plus worldwide employees are based at the company’s headquarters. The employees are important, Choi said, because they own homes in the city, shop at its businesses and support the local economy.

In addition to Botox, which generated nearly $2 billion in sales last year, Allergan sells ophthalmic medications, including Restasis, the only prescription drug approved to treat chronic dry eye. That drug produced nearly $1 billion in sales last year.

All told, Allergan reported revenue of more than $6 billion in 2013, a figure that’s expected to grow this year.

The company now has two challenges on its hands: trying to stave off the takeover while also keeping jittery employees focused on its core business.

Employees are being asked to focus on their jobs. “The best way they can help is by continuing to deliver extraordinary performance,” said Bonnie Jacobs, an Allergan spokeswoman.

“Allergan has a unique culture that is focused on putting customers and patients first,” Jacobs said, “and we have been impressed by how our employees have remained positive and committed to meeting and exceeding the needs of our physician customers and their patients.”

Valeant is unlikely to give up easily. The company has a valuable ally in Bill Ackman, whose Pershing Square Capital Management hedge fund is Allergan’s top shareholder, with 9.7% of the company’s stock.

Ackman has led a highly publicized — and unrelated — fight against Herbalife Ltd., eventually prodding the Justice Department and Federal Trade Commission to investigate his allegations that Herbalife operates a pyramid scheme — a claim the Los Angeles company denies.

The battle for Allergan may focus on the value of research and development. Valeant, in a document recently filed with the Securities and Exchange Commission, said pharmaceutical companies have dramatically increased R&D spending, without results to support the spending.

Its strategy is to acquire companies with existing products, rather than spending the money to develop its own.

The Allergan employee who asked not to be identified spoke while bringing back a sandwich from a Subway that’s walking distance from his office. If Valeant wins the bitter takeover fight and fires scores of workers, many of them will have to relocate, the Allergan employee said.

There just aren’t that many companies hiring research scientists in Orange County, he said. “We pay taxes, we spend money at these businesses.”

The Jamboree Promenade shopping center exists in large part because of its proximity to Allergan. There’s a dry cleaner, a dentist and several restaurants that fill up at lunchtime with Allergan workers.

“A lot of our business comes from Allergan, at least 20%,” said Hung Pham, manager of BB Vietnamese Cuisine. “They mean a lot to us and we see them almost every day. It’s more than a friendship. It’s almost family. We know what they want and how they want it.”

Dr. Michael Spitzer runs an optometry business at the shopping center. He estimates that 300 of his patients work at Allergan.

“If I lose 100 patients, that’s a lot. That would hurt,” Spitzer said, while picking up an order at Pham’s restaurant. “These lunch places probably survive because of Allergan. That’s the biggest employer around — one of the biggest in Orange County.”

Agran, the council member, said he’s not impressed with Valeant’s strategy.

“It sounds as though this is one of those deals where somebody is trying to leverage a lot of capital in a speculative way,” Agran said, “and turn what has been a firm invested in the long term into a source of short-term profitability at the expense of many employees and at the expense of the Irvine and Orange County communities.”

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