Morgan Stanley’s Valeant E-Mails Call Client a ‘House of Cards’

Put this in the category of, if you can’t say something nice, don’t write it in an e-mail.

A few weeks ago, Morgan Stanley pitched its defense services to Allergan Inc., which was fighting a hostile takeover bid from Valeant Pharmaceuticals International Inc. Valeant was a “house of cards” with an unsustainable business model, Morgan Stanley bankers wrote in the e-mails to Allergan, which released them yesterday.

Allergan decided not to hire Morgan Stanley -- while Valeant recently did.

The unusual disclosure of the e-mails was intended to bolster Allergan’s argument that Valeant is a flawed buyer -- and shows how antagonistic the battle between the two pharmaceutical companies has become.

Mary Claire Delaney, a spokeswoman for Morgan Stanley, declined to comment on the release of the e-mails. Valeant Chief Executive Officer Michael Pearson said in an e-mail that Allergan’s release “is a sign of desperation, and we look forward to proving the naysayers wrong.”

The Morgan Stanley e-mails were sent to Allergan Chief Executive Officer David Pyott and other company officers.

On May 13, according to Allergan, Robert Kindler, Morgan Stanley’s global head of mergers and acquisitions, wrote “that Allergan is not being nearly aggressive enough in going after the Valeant business model and currency.”

In another e-mail, Morgan Stanley managing director David Horn told Allergan Chief Finance Officer Jeff Edwards that Kindler could help thwart a deal.

‘Significant Relationships’

“Part of what Rob [Kindler] is suggesting [to Allergan] is to allow him to use his significant relationships with media and analysts to provide a clear and detailed articulation of why Valeant is a house of cards and your investors should not want to take their stock,” according to the portion of the e-mail released by Allergan.

At the time of the e-mails, Morgan Stanley bankers were trying to make the case they could present to investors a strong argument against the Valeant offer if Allergan hired them, said a person familiar with the matter who asked not to be identified because the e-mail is private. Morgan Stanley rates Valeant’s stock “overweight,” which indicates the firm doesn’t view the stock as a bad investment, the person said.

Allergan, in a statement yesterday, said the e-mails suggest that Morgan Stanley shares Allergan’s concerns about Valeant’s business model.

Valeant’s Pearson suggested Kindler wouldn’t be hurt by the disclosures.

“Kindler is one of the best M&A bankers out there,” he said in his e-mail. “While we will have some fun with him later, he’s still very much on our team.”

Valeant’s Defense

Kindler, 60, joined Barclays Plc and RBC Capital markets in advising Valeant. Allergan has hired Bank of America Corp. and Goldman Sachs Group Inc.

Allergan has twice rejected Valeant’s offers. On June 10, Allergan turned down Valeant’s most recent bid of $54.2 billion, saying it “substantially” undervalued the company.

Allergan has repeatedly criticized Valeant’s business model as centered on “serial acquisition.” The company also said Valeant can’t expand substantially on its own, has overstated its organic growth figures, and that sales from some of its units are eroding.

Valeant will hold a conference call today to “correct recent misrepresentations” posed through Allergan’s defense, the company said last week.

Kindler, who joined Morgan Stanley in 2006 after six years at JPMorgan Chase & Co., has been involved in some of the biggest deals, including the $12.9 billion merger of Continental Airlines with United Airlines in 2010 and 3G Capital Management’s $4 billion acquisition of fast food chain Burger King. He was also a key adviser on Comcast Corp.’s $45.2 billion takeover of Time Warner Cable Inc., which was announced in February.

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