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Allergan, Inc. (AGN): Bill Ackman Sends Letter Commenting on Potential Merger Deal with Actavis plc (ACT)

Bill Ackman‘s intentions to acquire Allergan, Inc. (NYSE:AGN) together with Valeant Pharmaceuticals Intl Inc (NYSE:VRXmight be a wasted exercise as the former is trying to shun the deal. In a recent development Allergan was approached by Actavis plc (NYSE:ACT), who also proposed to acquire Allergan. In a recent filing with the Securities and Exhange Commission, Mr. Ackman disclosed a letter sent to Allergan’s Board of Directors, in which the investor says that the deal that Valeant can pay more for Allergan, based on the fact that both Allergan and Valeant have similar strategies that will produce more cost and revenue synergies.

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“Accordingly, any sales process that does not include Valeant is by its very nature likely to lead to a suboptimal outcome for shareholders. This is particularly true in a transaction where stock comprises a substantial portion of the consideration,” Mr. Ackman added.

As Allergan, Inc. (NYSE:AGN) stated in a filing with the SEC, it has been approached by a third party, that according to many sources was Actavis plc (NYSE:ACT) and said that the discussions regarding a potential merger transaction might lead to negotiations. So, Allergan decided to pursue the possibility of a merger with Actavis, despite the fact that it has been trying to avoid a similar deal with Valeant Pharmaceuticals Intl Inc (NYSE:VRX) by explaining that the company is doing great on its own. As Allergan, Inc. (NYSE:AGN) said in a recent statement, “We have been very clear in our belief that we can create more value than Valeant’s offer and our recent actions have been focused on achieving that goal.” Allergan also added that it managed to increase significantly it sales, to post EPS above previous forecasts, and to raise its guidance for the next quarters, among other things.

The story involving Bill Ackman and two pharmaceutical companies, Allergan and Valeant started back in April, when Pershing Square disclosed a new activist stake in Allergan, Inc. (NYSE:AGN) which contained 28.89 million shares, representing 9.7% of the company. Pershing Square also announced that it had formed a joint entity with Valeant Pharmaceuticals Intl Inc (NYSE:VRX) and proposed a takeover of Allergan. Despite the takeover bid being raised, Allergan still refused to pursue a transaction. Moreover, Allergan initially refused to conduct a special shareholders meeting to discuss the takeover. After a lawsuit, Allergan agreed to settle and announced that it would hold a special meeting on December 18.

Meanwhile, Allergan, Inc. (NYSE:AGN) has attempted to shun the deal in other ways. At the end of September, the company planned to acquire another drug-making company, Salix, without seeking the consent of shareholders. Allergan also accused Mr. Ackman and Valeant of insider trading and filed a lawsuit against them. The court ruled a couple of days ago that Valeant Pharmaceuticals Intl Inc (NYSE:VRX) and Pershing Square’s moves raised some serious questions regarding the lawfulness of Pershing and Valeant’s practice, despite Mr. Ackman stating several times that Pershing Square had not taken any steps regarding the tender offer to purchase Allergan, Inc. (NYSE:AGN) before acquiring a position in the company.

Allergan, Inc. (NYSE:AGN)’s stock surged on the back of the merger announcement and has been going up since April, its year-to-date return currently reaching 75%. Moreover, with another potential buyer on the radars, the stock might grow even further anticipating a bid war between Actavis plc (NYSE:ACT) and Valeant Pharmaceuticals Intl Inc (NYSE:VRX).

Investors also became more active around this whole situation. During the second quarter, many activist investors reduced or cut their stakes in Allergan, while passive investors stepped up and started buying shares of Allergan, as it often happens with potential merger & acquisition situations. One of these investors is John Paulson, whose fund, Paulson & Co., initiated a stake in Allergan during the second quarter and owns 5.60 million shares as of the end of June.

With the new development, the situation around Allergan, Inc. (NYSE:AGN) is still uncertain, which is why for the next month or so, until Allergan’s special shareholders meeting, many eyes will be on the company. We should still wait until the current round of 13F filings is completed to see how investors reacted to the deal, although it is most likely that we will see many passive funds further boosting their stakes in Allergan.

Disclosure: none

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