Allergan Takeover Closer After Court Allows Ackman’s Vote

Allergan Inc. moved closer to a takeover -- hostile or friendly -- after a judge rebuffed the Botox maker’s bid to prevent Bill Ackman, its largest shareholder, from trying to oust directors opposed to an acquisition by Valeant Pharmaceuticals International Inc.

Allergan shares rose to a 52-week high yesterday following the ruling by a federal judge in Santa Ana, California.

“We now expect Allergan to more aggressively consider its alternatives including a possible friendly deal with another pharmaceutical company or an acquisition of its own,” Shibani Malhotra, an analyst at Sterne Agee & Leach Inc., said in a note to clients.

A deal with Actavis Inc., which has been said to bid for Allergan, “would create value” for Actavis shareholders, said Malhotra, adding that Valeant “may now be more inclined to formally increase its bid for Allergan.”

Allergan today filed an appeal seeking to overturn U.S. District Judge David Carter’s denial of its request to exclude billionaire hedge-fund manager Ackman from voting his 10 percent stake at a Dec. 18 shareholders meeting. The judge said Ackman must disclose his partnership with Valeant to Allergan shareholders and solicit new proxy votes.

Ackman’s Pershing Square Capital Management LP, which made a $1 billion paper profit on its Allergan investment when Valeant made its first merger approach in April, said in a statement it “intends to promptly supplement its proxy statement disclosure in the manner determined by the court.”

Valeant Offer

Allergan, based in Irvine, California, has been trying to fend off what’s been valued as a $54 billion hostile bid by Valeant. Allergan has called the offer “grossly inadequate” and alleged that the Canadian company would gut its research and development budget and use its cash flow to pay down debt accumulated from previous acquisitions.

Valeant has said it’s seeking to buy Allergan to expand its portfolio and become one of the world’s largest drugmakers. The company formed a joint venture with Pershing Square in February to acquire a 9.7 percent toehold in Allergan before going public with its acquisition plans a few months later.

Allergan fell about 1 percent to $193.36 at 2 p.m. in New York trading today. The shares have gained 36 percent since Valeant made its first takeover bid on April 22. Valeant declined 1.6 percent to $131.47.

The judge said in his ruling yesterday that Allergan had raised “serious questions” whether Pershing Square violated insider trading rules. The judge didn’t agree that preventing the fund that holds the Allergan stock, PS Fund 1, from voting at the shareholders meeting would be an appropriate remedy.

Carter said there were “too many ifs” between the fund voting at the meeting and any potential harm to Allergan and its shareholders.

‘No Good Way’

“There is no good way for the court to fairly evaluate whether and how Allergan’s shareholders and other investors will be harmed or benefited by an injunction enjoining PS Fund 1 from voting,” the judge said. It is in situations like these that courts should “leave decisions regarding a company’s future and a company’s management in the hands of shareholders.”

In ordering more information on the co-bidding between Valeant and Ackman, Carter preliminarily barred them and anyone acting on their behalf from voting any proxies they solicited based on the Sept. 24 statement, or soliciting any more proxies, until the required disclosures are made.

After Allergan refused to negotiate with Valeant, Ackman used his stake to push for a special meeting where shareholders could remove the majority of Allergan’s board as well as the poison-pill defense against hostile takeovers that it adopted after Valeant’s initial merger overtures in April.

SEC Review

In August, Allergan sued Valeant and Ackman accusing them of insider trading. Ackman has said that he welcomes a review by the U.S. Securities and Exchange Commission of Pershing Square’s takeover tactics and that it did nothing wrong.

Yesterday’s “ruling is a victory for all Allergan shareholders as it puts the choice of Allergan’s future in the hands of its owners,” said J. Michael Pearson, Valeant’s chairman and chief executive officer. “We look forward to the Dec. 18 special meeting, where we hope to move a large step closer to the compelling combination of Valeant and Allergan.”

Allergan hailed the judge’s injunction on proxies, saying it was pleased “the court ruled there are serious questions as to the merits of Allergan’s insider trading case against Pershing Square and Valeant.”

Valeant said on Oct. 27 that it’s prepared to raise its hostile takeover bid for Allergan to at least $200 a share to win support from the target’s board. Allergan should come to the table to discuss the offer before its shareholders meet on Dec. 18, Laval, Quebec-based Valeant said in a statement.

Securities Law

At an Oct. 28 hearing on Allergan’s request to block Ackman from voting at the meeting, the company’s lawyer argued that the Ackman fund that holds the shares isn’t an “offering person” under U.S. securities law and as such is subject to insider-trading restrictions.

Lawyers for Ackman and Valeant argued that the SEC had instructed Valeant to include PS Fund 1 as a co-bidder in the regulatory disclosures of the June tender offer for Allergan’s shares and that, as such, the venture couldn’t be accused of insider trading.

The two sides also disagreed over whether Valeant and Pershing Square had taken substantial steps toward making a tender offer to Allergan’s shareholders, as opposed to preparing for a negotiated merger with Allergan, as early as February when PS Fund 1 started buying Allergan shares. Allergan argued that Pershing Square bought the shares knowing a tender offer was unavoidable.

The case is Allergan Inc. v. Valeant Pharmaceuticals International Inc., 14-cv-01214, U.S. District Court, Central District of California (Santa Ana).

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