In a new filing with the Securities and Exchange Commission, Pershing Square Capital Management revealed a letter signed by its Chief Executive Officer, Bill Ackman, addressed to the board of directors of Allergan, Inc. (NYSE:AGN). In the letter, Mr. Ackman expressed his indignation with the board refusing to offer the shareholders the right to vote for the company to be acquired by Valeant Pharmaceuticals Intl Inc (NYSE:VRX) and considering a highly leverage acquisition instead without asking the shareholders for their consent.
As The New York Times reported yesterday, citing people familiar with the matter, the Botox Maker Allergan, Inc. (NYSE:AGN) had negotiated to purchase another drug-making company Salix Pharmaceuticals, Ltd. (NASDAQ:SLXP). If Allergan uses an all-cash tender offer that will expire before the meeting set for December 18, where the shareholders will be able to express their position on an acquisition by Valeant, it might set-off Valeant’s plans, the source added. The tender offer is what will allow Allergan, Inc. (NYSE:AGN) to proceed without asking shareholders’ opinion on the transaction.
“By undertaking an acquisition without a shareholder vote, with the purpose and desired effect of frustrating a Valeant transaction, you are breaching your commitment that shareholders would have a vote on the value proposition offered by Valeant. We do not believe you can lawfully undertake such a transaction, particularly given your failure to engage with Valeant. If you take such action we will immediately bring litigation against you (and any counterparty that aids and abets you) for breach of fiduciary duty,” Mr. Ackman said in the letter.
Mr. Ackman’s story with Allergan, Inc. (NYSE:AGN) goes back to April, when Pershing Square first revealed a stake in the company and announced the formation of a joint entity with Valeant Pharmaceuticals Intl Inc (NYSE:VRX) to propose an unsolicited bid to acquire Allergan. Since then, the story sparked a lot of discussions and several lawsuits, including accusations of insider trading. With the latest development involving Allergan’s attempt to acquire Salix, Mr. Ackman’s plans to buy Allergan might be further delayes, which means that there won’t be an end to the story any time soon.
The manager of Pershing Square is considered to be one of the best activist investors on Wall Street. Therefore, it is not likely that Mr. Ackman will even consider abandoning his plans to take over Allergan, Inc. (NYSE:AGN). Currently, Pershing Square owns close to 28.88 million shares of the company, which give it control over 9.7% of the company. In addition, Mr. Ackman’s involvement in Allergan has sparked the interest of many passive investors who either added the company to their equity portfolios or increased their existing stakes. One of them is John Paulson, whose fund Paulson & Co. revealed a new position in Allergan, which amasses 5.60 million shares as of the end of June. Daniel S. Och‘s OZ Management boosted its stake by 2.53 million shares to around 2.58 million shares, among others.
It is easy to understand why investors are so excited about this whole Pershing, Valeant Pharmaceuticals Intl Inc (NYSE:VRX) and Allergan, Inc. (NYSE:AGN) deal. Mr. Ackman is known to have an impressive track record. Back in 2012, he won a proxy battle to remove the CEO of Canadian Pacific Railway Limited (USA) (NYSE:CP) and change the board of the company. Since then, the stock of Canadian Pacific Railway Limited (USA) (NYSE:CP) has been growing and gained around 180% since May, 2012.
In addition, the Canadian Pacific is not the only success story that raises Mr. Ackman’s reputation on the Street. Even though, Pershing Square had a rough period last year, especially with its short bet on Herbalife, this year, the fund seems to be performing well, with most of its top holdings posting excellent returns. While Allergan surged by over 56% since the beginning of the year, Pershing second-largest equity holding, Air Products & Chemicals, Inc. (NYSE:APD) gained 20%, followed by Canadian Pacific Railway Limited (USA) (NYSE:CP) and Burger King Worldwide Inc (NYSE:BKW), which added around 32% year-to-date each.