In new Pershing Square filings, Ackman takes Allergan’s dare

August 7, 2014

If Allergan’s insider trading and disclosure suit against the hostile bidders Valeant and Pershing Square is a bluff, Pershing just called it.

William Ackman’s hedge fund dumped a pile of documents that Allergan complained it had improperly withheld on the Securities and Exchange Commission on Wednesday, including Pershing’s original confidentiality agreements with the Canadian drug company Valeant, as well as the share call option and forward contracts in which the hedge fund acquired its 9.7 percent stake in Allergan.

Pershing and Valeant also filed a brief in federal court in Santa Ana, California, agreeing to expedited discovery so it can dispose quickly of Allergan’s claims. The brief, signed by Kirkland & Ellis for Pershing and Sullivan & Cromwell for Valeant, is actually styled as an opposition to a motion to expedite by Allergan’s lawyers at Latham & Watkins and Wachtell, Lipton, Rosen & Katz. But after accusing Allergan of suing to impede shareholders from calling for a special meeting to oust directors, Pershing and Valeant said they’re raring to defend themselves against Allergan’s accusations.

These quick responses to Allergan’s complaint seem intended to assure Allergan shareholders that Pershing and Valeant have nothing to hide. Those shareholders, of course, are considering whether to throw in with Pershing and demand that the Allergan board convene a special shareholder meeting – a suicide mission because the purpose of the meeting would be to oust Allergan directors. (Pershing and Valeant need to replace enough current board members to undo the company’s recently adopted poison pill, which precludes Pershing from acquiring a bigger Allergan stake.) The proxy advisory services ISS and Glass Lewis this week advised shareholders to join up with Pershing, which has to amass written consents from 25 percent of Allergan shareholders in order to demand the meeting.

Allergan’s primary goal right now, based on its Aug. 4 motion to expedite the California case, is to make sure that the special meeting doesn’t take place. It can do that in two ways: by raising sufficient doubts about Valeant and Pershing to dissuade shareholders from joining Pershing’s call for the meeting; or by obtaining a ruling that Valeant and Pershing really did violate securities laws. A judgment against the hostile bidders, Allergan said in its brief, would empower the board to refuse to convene a special shareholder meeting. It would also spell the end of Valeant’s tender offer and remove a drag on Allergan’s share price, the brief said.

In the unlikely event that Pershing and Valeant lost the California case but continued their pursuit of Allergan until next May, when the company is scheduled to hold its regular annual shareholder meeting, Allergan could even argue that a securities law judgment against Pershing precludes the hedge fund from voting on board members and other shareholder issues. But that’s a really long way off, in a takeover battle studded with unforeseen tactics.

And besides, Pershing and Valeant don’t seem to be worried that they’ll lose the litigation, if their filings Wednesday are to be trusted. Among the documents Allergan’s Aug. 4 motion called for Pershing and Valeant to produce were the confidentiality agreement and share acquisition contracts that Pershing disclosed to the SEC on Wednesday. (Allergan also said it needs to know more about the role of Robert Ingram, who served simultaneously as an Allergan and Valeant director, then resigned from Allergan’s board.) From my read of the confidentiality agreement – which dates back to Feb. 9 and required Pershing to agree to certain conditions before Valeant disclosed that it was targeting Allergan – the document does not suggest that the two were secretly contemplating a tender offer for Allergan when they launched their partnership.

Pershing and Valeant also said in their response to Allergan’s motion to expedite that they’re “prepared to prove the absence of merit to this case under any procedure or schedule convenient for the court.” That offer, they said, includes “reasonable discovery … on an expedited basis.”

I highly doubt that Allergan’s California suit is going to decide which side wins the takeover battle. Deal litigation almost never does, partly because court proceedings take a long time, even when they’re expedited. And as Ron Barusch pointed out in his Dealpolitik column in Thursday’s Wall Street Journal, Valeant already has to be wondering whether its long timetable for the Allergan takeover was a strategic mistake. I’m sure it’s no fun for Allergan or Valeant shareholders to watch their share prices drop as the companies beat each other up.

But it sure is a great poker game.

In an email statement, Allergan said, “The proposed schedule, if adopted by the court, would produce a resolution of the company’s claims in a timely fashion. Allergan is pleased that in Pershing Square’s opposition papers, they agreed to expedited proceedings.”

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