The acrimonious takeover battle between Allergan and Valeant landed back in court late last week amid allegations of insider trading.
The Botox manufacturer filed suit in a Californian court claiming Valeant’s hedge fund backer Pershing Square Capital – and its owner Bill Ackman – had fraudulently built up a stake in the company ahead of Valeant’s first public offer for Allergan in April while “fully aware” of the Canadian pharma company’s takeover intentions.
The move comes shortly after Valeant filed complaints against Allergan in the US and Canada over public statements made by Allergan’s board that suggested its business model of growth by acquisition and streamlining was fundamentally flawed.
The lawsuit could block Valeant’s $53bn hostile takeover attempt for several months by disrupting efforts to convene a special meeting of Allergan shareholders aimed at replacing many of the company’s board of directors, according to BMO Capital Markets analyst David Maris.
Valeant is accused in the lawsuit of colluding with Pershing in the acquisition of 25 million Allergan shares valued at around $3.22bn via a shell company called PS Fund 1 prior to making a public disclosure of their intention to bid for Allergan.
Pershing made an immediate $1.2bn return on paper when news of the offer became public and Allergan shares grew 15 per cent in value, and this caused “significant damage” to the parties who sold their shares to PS Fund 1, according to the complaint.
Allergan also claims that Pershing was privy to non-public information and so acted illegally in purchasing the 9.7 per cent stake in the company, and is pushing for the sales to be rescinded and the shares returned to their former owners.
Under current US rules amassing a position of 5 per cent or more in a company is supposed to trigger disclosure to the Federal Trade Commission (FTC), but there is a 10-day grace period which was exploited by Pershing just before Valeant’s first public bid.
Meanwhile, Valeant and Pershing have insisted that the trades were carefully constructed to legally bypass disclosure requirements, and that Allergan’s lawsuit is a “desperate attempt” by its management to “interfere with shareholders’ efforts to call a special meeting”.
“This scorched-earth approach is further evidence of the board’s and management’s further entrenchment,” said Ackman, who maintains that the buying policy was vetted by Robert Khuzami, a former director of enforcement at the Securities & Exchange Commission (SEC).
The lawsuit is just one weapon Allergan is using to try to fend off Valeant. Last month the Botox manufacturer announced plans to cut 1,500 jobs – around 13 per cent of its workforce – to boost profitability and returns to shareholders.
Allergan has rebuffed a series of Valeant offers and insists that the acquisitive Canadian company is “an empire built on sand” and saddled with debt.