Institutional Shareholder Services and Glass Lewis have dealt a blow to David Tepper’s Appaloosa Management in the hedge fund firm’s fight to nominate a new chairman to pharmaceutical giant Allergan’s board.
The two proxy advisory firms have sided with Allergan, recommending that shareholders vote against a proposal from Appaloosa, according to a Monday announcement from Allergan.
Appaloosa has proposed separating the roles of chairman and chief executive officer and nominating a new chairman to the company’s board.
“Allergan’s Board deserves no deference as the incumbent directors have presided over a failed strategic review, a questionable business strategy and excessive compensation packages, and have exhibited a disregard for sound corporate governance practices,” Appaloosa said in a statement on Monday. “ISS’s recommendation to forestall a separation of Allergan’s chairman and CEO roles represents a misunderstanding of the reasons for the company’s underperformance, is inconsistent with its support last year for a similar proposal and is baffling.”
Appaloosa did not mention Glass Lewis in its statement. In its report, Glass Lewis stated that it does not believe there are “substantial issues” for shareholder concern. “We recommend that shareholders vote FOR all nominees,” the report stated.
It is rare for proxy advisory firms to advise against supporting shareholder proposals to appoint independent directors, ISS noted in its recommendation. It cited concerns about the immediacy of Appaloosa’s proposal, which, if approved, would automatically require a chairman transition, and noted that Allergan already has a lead independent director.
“Although it is considered that the proponent has raised a number of valid concerns regarding the company's long-term performance and board oversight of ‘strategic missteps,’ there are no significant concerns regarding the board's current leadership structure sufficient to suggest that an immediate split of the CEO and chairman roles is warranted at this time rather than at the next CEO transition,” the ISS report stated.
Appaloosa first asked Allergan to separate the role of CEO and chairman roughly a year ago, in April 2018, according to its recent shareholder proposal presentation. Since then, the hedge fund firm has been pushing for the change to be made official, submitting the shareholder proposal in October 2018, the presentation said.
Allergan is hosting its annual shareholders' meeting on May 1, where voting on the matter will take place, proxy voting materials show.
Appaloosa is pushing for change at Allergan for a few reasons, it said. The firm said that Allergan’s M&A strategy, a “botched” strategic review, and the way it handled a patent protection challenge to one of its drugs “through a questionable arrangement with the Saint Regis Mohawk Tribe” were among the reasons its share price has declined over the past few years.
According to the presentation, Allergan’s stock declined from a peak of $339.50 per share in July 2015 to $159.89 in April 2018, when the firm first asked Allergan to separate the CEO and chairman roles.
“We are not a typical activist investor and rarely seek to influence corporate governance at our portfolio companies,” Appaloosa said in its shareholder proposal presentation. “In this instance, however, we felt compelled to take this action due to the drastic erosion of shareholder value at Allergan and need for accountability.”
[II Deep Dive: David Tepper’s Appaloosa Sees Steep Decline in Assets]
Appaloosa, which had $13 billion under management as of March 1, has held Allergan shares since 2015, according to the ISS analysis of the shareholder proposal.
Allergan said Monday that it plans to make a change with its chairman and CEO positions with its next leadership transition.
"The board and management team are fully focused on improving the company's operational and financial performance and creating value for shareholders,” the company said in the statement.