Allergan Inc. sued Valeant Pharmaceuticals International Inc., accusing the drugmaker of working with Bill Ackman’s hedge fund to profit on insider trades during a hostile takeover fight for Botox-maker Allergan.
Ackman and his firm, Pershing Square Capital Management LP, secretly acted in concert with Valeant to buy Allergan’s shares while plotting a tender offer, Allergan said in a complaint filed today in federal court in Santa Ana, California.
When the tender offer was announced in April, Ackman and Pershing Square were in a position to reap “windfall profits,” Allergan said.
Allergan said that from February to April, Pershing Square bought Allergan stock and securities then valued at more than $3.2 billion from stockholders while fully aware of Valeant’s takeover intentions, depriving investors of $1.2 billion in value when the offer was announced in April.
Allergan asked the court to find that New York-based Pershing Square violated securities regulations while in possession of nonpublic information pertaining to a tender offer. It is seeking an order rescinding Pershing Square’s purchase of the shares.
Pershing Square has teamed with Laval, Quebec-based Valeant in its bid to buy Allergan as Valeant’s Chief Executive Officer Mike Pearson aims for his company to become one of the world’s biggest drugmakers. Pearson has spent at least $19 billion buying more than 40 companies since he took the helm in 2008.
The takeover has become heated with both sides attacking each other’s business models. Ackman called for a special meeting of Allergan’s shareholders to remove most of the company’s board and add six new directors.
Laurie Little, a spokeswoman for Valeant, didn’t immediately respond to an e-mail seeking comment on the lawsuit. Francis McGill, a spokesman for Pershing Square, had no immediate comment.
“This case is about the improper and illicit insider-trading scheme hatched in secret by a billionaire hedge fund investor on the one hand, and a public-company serial acquirer on the other hand,” lawyers for Allergan said in the complaint.
In an interview with Bloomberg Television in April, billionaire hedge fund manager Ackman discussed the offer, saying that he structured trades to avoid triggering certain U.S. Federal Trade Commission disclosure requirements.
Using options allowed Pershing Square to skirt rules requiring government approval to buy more than $75 million of a company “with an intent to influence control of the business,” Ackman said.
Ackman said at the time that he was “helping facilitate a transaction between two companies for the benefit of the shareholders.”
Valeant’s acquisitions since 2008 left it with a “staggering” debt loan of $17.3 billion, and a business model that “depends on constantly making new and larger acquisitions,” Allergan said in its complaint.
Allergan said in the complaint that, as a “well- established, well-run” company with $1.5 billion in cash on its balance sheet and little debt, it was an ideal target, which Valeant sought with financial help from Pershing Square.
After purchasing Allergan, Valeant would “gut Allergan’s research and development program to inflate short-term profits and use Allergan’s cash and cash flow to service Valeant’s mounting debt,” the Botox-maker said.
Valeant hatched a plan with Ackman, who saw an “incredible opportunity to buy Allergan stock with advance inside knowledge,” guaranteeing high returns, Allergan alleged.
Federal laws prohibit people with inside knowledge of an impending deal from trading in the stock of an acquisition target once the offerer takes substantial steps toward launching the bid.
To get around those legal restrictions, Valeant came up with a plan with Ackman to acquire substantial amounts of stock while avoiding making an official tender offer until the right time, according to the complaint. Pershing used a shell company PS Fund 1 to acquire the stock, and Valeant “blatantly tipped” Pershing Square about the offer, according to the complaint.
“Unfortunately for them, the clear requirements of the federal securities laws cannot be so easily defeated by a ‘now you see it, now you don’t’ sleight of hand,” Allergan said.
While maintaining the alleged fiction they were not making a tender offer, PS Fund 1 embarked on buying sprees, including one in April in which it exploited the Williams Act’s “archaic 10-day window” allowing an investor to wait 10 days after crossing a threshold of owning 5 percent of shares before disclosing its acquisition intentions, Allergan alleged.
By the time the stake was disclosed, PS Fund 1 had 9.7 percent of Allergan’s outstanding stock, the company said.
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