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Allergan board rejects immediate separation of chairman, CEO role

Allergan PLC has agreed to phase in an independent chairman but only during the next CEO transition, according to the company's March 22 proxy statement.

The decision counters an investor proposal to immediately make the change, which would separate the role of CEO and board chairman, both of which are now held by Brent Saunders. Allergan's board did not signal a timeline for the next CEO transition.

In the proxy statement, Dublin-based Allergan included a nonbinding shareholder proposal to "immediately" adopt an independent board chairman, but recommended against it.

"The board firmly believes that at the present time a combined chairman/CEO role coupled with a robust lead independent director role is the best structure to position the company for success," lead independent director Chris Coughlin said in the proxy statement.

The board's decision follows repeated appeals from shareholder and activist investor Appaloosa Management LP. The firm has appealed four times for Allergan to appoint an independent chairman, most recently citing revenue losses in 2018 and "self-inflicted wounds" at the hands of executives.

Shareholders will vote on Appaloosa's proposal at the company's May 1 annual meeting, but the measure is nonbinding.

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In response to the proxy statement, Appaloosa called the proposal "a weak attempt to placate discontent and avoid a well-deserved rebuke to management."

"Unless the board intends to make a CEO transition in the very near-term, these measures are no more than a meaningless series of gestures intended to preserve the current system of lax oversight and further entrench management," Appaloosa wrote in a March 25 press release. "The status quo is unacceptable and disruptive measures are necessary for shareholders to convince this board that it must make the decisions required to fix the company or, if they are unwilling, sell it to a more capable acquirer or merger partner."

Former Celgene Corp. CEO Bob Hugin in February joined Allergan's board, which at the same time signaled limited support for a phased-in independent chairman.

Credit Suisse analyst Vamil Divan noted the nonbinding nature of the proposal and said the phased-in approach is in line with what Allergan had previously announced when Hugin joined the board.

"We wonder if investors who have been frustrated with the team and the stock's performance will be satisfied with that as an outcome," Divan said.

Divan said the company's formation of an M&A oversight committee, also announced in the proxy statement, was positive for Allergan to overcome a "string of deals" the company has completed in the past several years that "have not created value and have led to significant pipeline disappointments."