A few days after the Canadian pharmaceutical company Valeant announced that it had teamed up with the activist investor William Ackman to bid for Botox maker Allergan, Wachtell, Lipton, Rosen & Katz wrote a teeth-gnashing client alert about the new threat to corporate targets from the unholy alliance of a strategic bidder with an activist hedge fund. Commentators were already raising questions about whether Ackman and Valeant had engaged in insider trading, because Ackman secretly accumulated Allergan shares based on his knowledge of Valeant’s imminent takeover bid. But in that early memo, Wachtell didn’t claim Valeant and Ackman had broken insider trading rules. Instead, the firm bemoaned Valeant and Ackman’s “conspicuously structured” stratagem that “took express pains to sidestep” the Williams Act’s bar on trading in advance of a tender offer.
Unfortunately for Allergan and future target companies, Wachtell said, “The structure is crafty, and good for Valeant and Pershing Square (as long as no bad facts emerge, such as undisclosed arrangements, that could get them in trouble).”
A prophetic parenthetical? On Friday, Wachtell – now acting as counsel to Allergan, along with Latham & Watkins – filed a complaint in federal court in Los Angeles that accuses Valeant and Ackman of executing an “improper and illicit insider-trading scheme … flouting key provisions of the federal securities laws.” The suit not only claims that Valeant and Ackman didn’t make adequate disclosures to Allergan shareholders – reviving an old takeover defense tactic from the 1980s – but also pushes the novel theory that Ackman violated a provision of the Williams Act prohibiting anyone except an acquirer from trading on material non-public knowledge that the acquirer has taken “a substantial step” toward launching a tender offer.
Ackman, according to the complaint, violated both pieces of the provision. First, he isn’t really the strategic co-acquirer he and Valeant have purported him to be in filings with the Securities and Exchange Commission, according to Allergan. The target’s suit portrays Ackman as a money man who saw the co-bidder arrangement as an opportunity to realize quick gains from Valeant’s takeover bid, but who may later walk away if his interests diverge from Valeant’s. And both Valeant and Ackman, according to Allergan, have long known that Valeant’s unsolicited takeover bid for Allergan would end up as a hostile tender offer, not least because Allergan rebuffed advances from Valeant back in 2012. According to the complaint, Ackman has done precisely what the Williams Act provision prohibits, cashing in on inside knowledge that someone else is planning a tender offer.
That’s obviously quite a different read than Wachtell had in April, when it begrudgingly acknowledged the “crafty” structure Valeant and Ackman had devised to get around the Williams Act. So what do Allergan and Wachtell know now that they didn’t know then?