From a sustainability perspective, the situation involving Allergan and Valeant Pharmaceuticals presents an interesting issue. While we recognize the merit in Valeant’s acquisitive strategy, to gain control of strong free cash flow products while also dispensing with R&D expenses to boost margins and profitability, from a sustainability standpoint we question whether this hurts stakeholders over the long run.

As a standalone company, Allergan has delivered solid financial returns as well as maintaining its commitment to transparency and sustainable operations. The company has been an early adopter of sustainability reporting since 1992 and has done a thorough job over the years of keeping investors informed of safety, energy consumption, and waste generation trends as well as publishing its comprehensive annual sustainability performance report. It is an organization that understands its role not only in the context of its own industry, but also as a player in a broader global community. Here’s a snapshot of their sustainability goals going out to 2020.

• Improve Sustainability Performance
• Establish incident rate goal at <0.5
• Achieve Allergan overall recycling rate > 80%
• Achieve 50% Allergan waste reduction in absolute terms by 2020 using 2005 as the baseline
• Achieve 50% energy and water reductions in absolute and normalized to square footage, production and sales terms by 2020 using 2005 as the baseline
• Achieve 50% GHG emissions reduction in absolute terms by 2020 using 2005 as the baseline
• Purchase 50% green energy by 2020
• Increase staffing to appropriate levels as determined by project management planning
• Increase community interaction

Some of these initiatives translate directly to the financial bottom line, i.e., a reduction of waste and energy usage, while other initiatives aid in boosting worker productivity and mitigating future risks. The company also makes a commitment to become more involved in the communities in which they operate.

All of this is in stark contrast with Valeant’s culture. Taking a deeper look at Valeant’s website we were unable to locate any evidence of sustainability reporting or signs of a commitment to the broader aspects of ESG. They certainly fell far short when compared to the information and commitment provided by Allergan and its CEO. We strongly suspect this degree of ESG awareness will be thrown to the wayside if the Valeant takeover goes through and would pose the question of which is the better outcome for all stakeholders in the long run. What would be lost if the company’s sustainability goals no longer have relevance under new management?

We would appreciate any comments and invite others to contribute to the conversation.

Best wishes,

Andrew Friedman, CFP®
AJF Capital Management, Inc.
708 Third Ave., Suite 2011
New York, NY 10017

212-779-0789
212-686-4590 (fax)

Securities offered through American Portfolios Financial Services, Inc. (APFS) Member FINRA/SIPC. AJF Capital Management, Inc. is not affiliated with APFS.

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