Hedge fund manager John Paulson spoke at the CNBC Institutional Investor Delivering Alpha conference on Wednesday, offering keen insight in the current merger environment. Paulson signaled that Valeant Pharmaceuticals International Inc. (NYSE: VRX) is a very serious acquirer and he has predicted that Allergan Inc. (NYSE: AGN) will ultimately not be likely to win in its effort to block a merger.
The Paulson & Co. hedge fund holds roughly 6 million shares of Allergan, making his stake roughly $1 billion. He has backed Valeant’s offer to buy Allergan. Where the situation got interesting was when Paulson predicted that Allergan’s share price could rise up as high as $222 — versus $165 or so now — based on the savings that Valeant’s CEO might make.
With shares close to $165 now, the all-time high is $174.49 and the consensus price target is up at $187.43.
Paulson gave an interview with CNBC’s Melissa Lee as well at the Institutional Investor Delivering Alpha conference. We have included a link to the CNBC video for those who prefer videos, and we also have a delivered a very long transcript of the Paulson interview on CNBC.
The full transcript is here. We would point out that this is still the unofficial transcript, so it is unedited for final draft purposes.
MELISSA LEE: Thank you, John, for joining us here. This is your second TV interview you’ve done. The first one being at last year’s Delivering Alpha. We’re thrilled to hear your perspective. And specifically on M&A. And of course there’s so much new news today to talk about.
I first want to congratulate you on your 20th anniversary. Paulson & Company this month celebrating its 20th anniversary in the business. You started off as an art shop basically, so this right up your wheelhouse.
JOHN PAULSON: That’s right. Thank you, Melissa, and CNBC for having me again this year. That’s right. This is a very exciting time to be involved in merger arbitrage. Last quarter we had $1.1 trillion of announced transactions, and that’s the highest it’s been in the last five years, and near the record achieved in 2007.
What’s driving the activity today is several factions, one is very low level of interest rate. Two, record stock market valuation, so companies can use either cash or stock to do transactions. And three, the transactions are accreted. So in a slow-growth environment, by doing a strategic, secretive transaction, corporations can grow faster than they can organically. Because of that many of the acquired stocks are being rewarded and therefore the executives now are in position, in order to grow faster, acquisitions are part of the mix. And if they don’t grow, they themselves — if they don’t grow the acquisitions, they’ve — they may themselves be a takeover target. So that’s propelling activity. And I think that’s going to continue for the foreseeable future.