Allergan PLC Valuation Jack Carroll, Richard Papaianache, and Luke Mause 11/19/2015 Table of Contents Unit 1: Company, Industry and Competitors............................................................................................... 3 Executive Summary .......................................................................................................................... 6 Business Description ........................................................................................................................ 9 Acquisitions-Divestitures ............................................................................................................... 10 Expansion/Contraction Announcements ....................................................................................... 13 New Products ................................................................................................................................ 14 Lawsuits ......................................................................................................................................... 15 Events ............................................................................................................................................. 17 Major Products .............................................................................................................................. 20 Competitors ................................................................................................................................... 21 Leadership ...................................................................................................................................... 25 Share Ownership and Compensation Plans ................................................................................... 30 The Future ...................................................................................................................................... 34 Analyst Forecasting ........................................................................................................................ 37 Unit 2: Financial Performance Analysis ..................................................................................................... 41 Executive Summary ........................................................................................................................ 44 Stock Price Performance ................................................................................................................ 46 Absolute Performance ................................................................................................................... 49 Growth Performance ..................................................................................................................... 50 Financial Performance ................................................................................................................... 52 Altman Z-Score ............................................................................................................................... 54 DuPont Analysis ............................................................................................................................. 55 Unit 3: Cost of Capital, Capital Structure Analysis and Distributions……………………………………………………56 Executive Summary ........................................................................................................................ 59 Debt................................................................................................................................................ 60 Equity ............................................................................................................................................. 63 Cost of Capital ................................................................................................................................ 65 Unit 4: Financial Statement Forecasts ....................................................................................................... 67 Executive Summary ........................................................................................................................ 70 Assumptions ................................................................................................................................... 71 Forecast Projections....................................................................................................................... 73 Altman Z-Score ............................................................................................................................... 83 DuPont Analysis ............................................................................................................................. 85 Unit 5: Cash Flow Valuation ....................................................................................................................... 86 Executive Summary ........................................................................................................................ 89 Adjusted Present Value Model ...................................................................................................... 90 Entity Valuation Model .................................................................................................................. 92 Free Cash Flow to Equity Model .................................................................................................... 95 Unit 6: Multiples Valuation Analysis ......................................................................................................... 97 Executive Summary ...................................................................................................................... 100 Multiples Comparison and Implied Valuations ............................................................................ 101 Unit 7: Summary and Conclusions ........................................................................................................... 104 Executive Summary ...................................................................................................................... 107 Summary and Conclusions ........................................................................................................... 108 Works Cited .............................................................................................................................................. 111 Appendix ................................................................................................................................................... 113 Unit 1 Table of Contents Executive Summary ...................................................................................................................................... 6 Business Description .................................................................................................................................... 9 Acquisitions-Divestitures ........................................................................................................................... 10 Expansion/Contraction Announcements .................................................................................................. 13 New Products ............................................................................................................................................ 14 Lawsuits ...................................................................................................................................................... 15 Events ......................................................................................................................................................... 17 Major Products ........................................................................................................................................... 20 Competitors ................................................................................................................................................ 21 Leadership .................................................................................................................................................. 25 Share Ownership and Compensation Plans .............................................................................................. 30 The Future................................................................................................................................................... 34 Analyst Forecasting .................................................................................................................................... 37 5 Executive Summary Current Situation In 2015 Allergan merged with Actavis (formerly Watson) and named the conglomerate Allergan. The deal itself was valued at $70.5 billion and created the world’s tenth largest pharmaceutical company by sales revenue. This acquisition resulted in an increase in stock price because Allergan was bought at a premium. Sales are estimated to increase 64% from $13 billion to $21.5 billion for 2016. Competitors The word cloud above depicts each of Allergan’s competitors in respect to its market capitalization. Allergan’s competitors (by market cap) are Johnson & Johnson (261.4 billion), Pfizer (204.5 billion), Procter & Gamble (188.3 billion), Gilead Sciences (162.9 billion), Merck & Co. (150.8 billion), Amgen (115.3 billion), Bristol-Myers (100.2 billion), Celgine (98.3 billion), AbbVie (98 billion), Eli & Co. (92 billion), Abbott Laboratories (65.2 billion), Regeneron