Pharmaceuticals

Allergan gets Icahn’s nod of approval, CEO says

Allergan CEO on deal with Teva
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Allergan CEO on deal with Teva

For CEOs, it's not always good news when activist investor Carl Icahn has his eyes on your company. But for Allergan, CEO Brent Saunders says Icahn's investment announced last week was the ultimate stamp of approval.

"I asked him did he have something he wanted us to do differently?" Saunders told CNBC's "Squawk on the Street" on Monday. "He said no, that he was confident in our strategy and he looked forward to being an investor for the long-term."

Icahn's investment in the pharmaceutical company comes two months after the U.S. government blocked a $160 billion merger with Pfizer by issuing new tax inversion rules.

Shares of the company, which makes the wrinkle-injection Botox, jumped 3 percent on the Icahn investment news last week. The exact size of his stake isn't known, since it was not filed with the Securities and Exchange Commission.

"He did say it was a very large position but we'll have to wait until we get the shareholder trades for the month to see what it actually is," Saunders said.

Icahn and Saunders first worked together at Forest Laboratories, where Saunders was previously CEO. The company was later acquired by Actavis, which eventually combined with Allergan.

Carl Icahn
Adam Jeffery | CNBC

"He is a shrewd investor," Saunders said of Icahn. "I think he saw what we saw when we announced our $10 billion buyback, which is that Allergan is a compelling investment."

The company's stock buybacks will begin immediately after the close of a deal for Teva Pharmaceuticals to Allergan's generic drug business for $40.5 billion. The company will start buying back stock in increments of $4 to $5 billion when the deal wraps up this month, Saunders said, then renew the program until it exhausts the $10 billion.

"My sense is that will take us several months to do the whole thing but we will get it done," he said, adding that the Dublin-based company could not complete an immediate buyback because of Irish law.

The Teva deal will also allow the company to pay down about $8 billion in debt immediately. Another $2 billion in debt will be paid over the next 18 months as bonds mature, Saunders said. The rest of the profits from the Teva deal, Saunders said, are designated for growth.

"That will leave us net round number about $20 billion including cash flow from operations to invest for growth," he said. "We'll be looking to bolster our position in the categories in which we compete through M&A."