Pershing Square sues Allergan over Valeant rejection

Following Allergan’s continued rejection of Valeant Pharmaceuticals International’s hostile takeover bid last week, Pershing Square Capital Management announced it has filed a lawsuit against Allergan.

Pershing Square is seeking to call a special meeting of Allergan shareholders later this year, where the hedge fund said it hopes to vote in new board members who would support the deal, valued at $53 billion.

However, Pershing Square noted that Allergan has not made it clear whether calling the meeting would set off a shareholder rights’ plan-or poison pill-that would substantially dilute shareholders, including Pershing Square, Allergan’s largest shareholder (9.7%).

Allergan, by not providing clarity, is effectively delaying any potential meeting, the hedge fund said.

Because of this complication, Pershing Square has filed a lawsuit against Allergan in Delaware court, seeking a declaratory judgment to clarify whether calling a meeting would trigger the poison pill.

“We regret that we were forced to file this lawsuit,” said William A. Ackman, who manages Pershing Square. “Allergan’s failure to confirm that its poison pill does not apply to the actions taken in furtherance of calling a special meeting is a blatant attempt to frustrate shareholders’ ability to express their views and exercise their rights.”

Pershing Square said it requested confirmation on June 6 from the company that calling a meeting would not set off the poison pill. Allergan’s counsel replied last week, but “failed to provide the confirmation requested,” according to Pershing Square.

According to The New York Times, the letter from Allergan last week did include a reply to the main question it proposed, stating that as long as the company does not own more than 10% of shares, calling a special meeting “should not, of itself” trigger the poison pill.

Provisions in Allergan’s corporate bylines have left Pershing Square unsure what assistance can be provided to other shareholders, who will have to file proxies to call the meeting.

The hedge fund said it requested clarification about these issues, but Allergan did not address them in its reply.

“It would nonetheless be all but impossible to provide full and complete responses to the remaining questions set forth in your letter given the important factual nuances,” Allergan’s lawyers wrote.

Allergan’s counsel offered Pershing Square the opportunity to discuss the matter in a conference call. While the two sides had talked in the past, according to sources who spoke to The New York Times, Pershing Square did not call back and instead filed a lawsuit against Allergan.

“Using a poison pill to silence shareholders or prevent them from exercising their voting rights is unlawful,” said Pershing Square in a prepared statement.

Nevertheless, despite the lawsuit, Allergan continued to reiterate Monday that Valeant’s business model is unsustainable.

In a prepared statement, Allergan said that Valeant “relies on serial acquisitions and cost reductions, as opposed to top-line revenue growth and operational excellence.”

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