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Is Zoetis Inc (ZTS) Bill Ackman’s Back-up Plan for Valeant Pharmaceuticals Intl Inc (VRX)?

As it was previously rumored in many sources, Bill Ackman‘s Pershing Square took a massive position in Zoetis Inc (NYSE:ZTS), as reported in a new filing with the US Securities and Exchange Commission. Pershing Square currently owns some 41.82 million shares, which represent 8.3% of the company’s outstanding stock. The stake is activist by nature and Pershing Square also said that it had entered into a letter agreement with Scott Ferguson‘s Sachem Head Capital.


Bill Ackman is a notorious activist investor, which is why the news about him buying a big position in the $22 billion veterinary company sent the stock up in Tuesday trading, even until the information was officially confirmed. According to some sources, Pershing Square might now pursue Zoetis Inc (NYSE:ZTS) into selling itself to Valeant Pharmaceuticals Intl Inc (NYSE:VRX), a company with which Pershing Square formed a joint entity earlier this year and are currently trying to buy Allergan, Inc. (NYSE:AGN). However, while in the case of Allergan, Pershing Square almost immediately disclosed its plans and agreement with Valeant, in the case of Zoetis, the fund did not say much in its filing.

However, what is interesting is Pershing Squre’s agreement with Sachem Head, which was mentioned in the filing. Sachem Head owns almost 4.40 million shares of Zoetis Inc (NYSE:ZTS), which give it a participation of 0.9%. Under the terms of the agreement, Pershing Square will pay an incentive fee to Sachem with respect to its stake in Zoetis and Sachem agreed not to trade any shares of the company for a period of time. Both parties agreed to consult with each other regarding different issues related to Zoetis and their holdings in the company.

Zoetis was spun-off from drug company Pfizer Inc. (NYSE:PFE) in February 2013. It stock appreciated by 40% since the IPO and the company became one of the largest animal-health industry. Among other shareholders of Zoetis is also George Soros‘ Soros Fund Management, which owns 4.37 million shares as of the end of June, while Matthew Halbower‘s Pentwater Capital Management holds around 5.74 million shares as of the end of the second quarter. Both Soros and Pentwater upped their stakes by 5% and 11% on the quarter respectively.

In this way, if Mr. Ackman really intends to set up an acquisition of Zoetis Inc (NYSE:ZTS) by Valeant Pharmaceuticals Intl Inc (NYSE:VRX), it could mean that this investment represents a back-up plan in case the deal with Allergan fails. However, in such a development, Mr. Ackman and Valeant Pharmaceuticals Intl Inc (NYSE:VRX) might face a lot of controversial talks related to their bid for Allergan, Inc. (NYSE:AGN).

Mr. Ackman said earlier that Pershing Squre targets a big activist stake in a company, without mentioning any hints. We made an assumption back then that he might be interested in acquiring a position in Yahoo! Inc. (NASDAQ:YHOO), as it has been targeted by other activist investors, such as Jeff Smith‘s Starboard Value. It is not clear though if Zoetis Inc (NYSE:ZTS) was the company that Mr. Ackman was talking about, or it is a new plan that he has come up with amid various problems regarding Allergan, Inc. (NYSE:AGN)’s bid.

One thing is clear, though. Mr. Ackman is a notorious activist investor, and other investors will appreciate his involvement in Zoetis, which has already sent stock up and we will probably see many other passive investors buying shares of Zoetis Inc (NYSE:ZTS) in the next round of 13F filings (as it was the case with Allergan). Meanwhile we should keep the company on our radars and we will keep you updated regarding further developments.

Disclosure: none

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