Allergan files US lawsuit accusing Valeant, Pershing Square of insider trading

Allergan on Friday filed a lawsuit in a US district court alleging that Valeant Pharmaceuticals and Pershing Square Capital Management "violated federal securities laws prohibiting insider trading, engaged in other fraudulent practices and failed to disclose legally required information." The suit, which also names Pershing Square CEO William A. Ackman, claims that between February and April of this year, the hedge fund purchased Allergan stock and securities worth more than $3.2 billion while "fully aware" of Valeant's non-public takeover intentions. Allergan asked the court to rescind Pershing Square's purchase of the Allergan shares.

"After careful consideration, Allergan decided to file the lawsuit in order to ensure that all of its stockholders have the opportunity to make decisions regarding their investment in the company based on compliant, full and fair disclosures, and to ensure that any stockholders voting on corporate matters acquired their shares in accordance with the law," Allergan said in the filing. However, Valeant stated in a response that "the complaint makes baseless claims about Valeant and Pershing Square," adding that "Allergan's true purpose in bringing the litigation is an attempt to interfere with shareholders' efforts to call a special meeting." Meanwhile, Valeant CEO J. Michael Pearson noted that "despite Allergan's attempted roadblocks, we remain committed to pursuing this compelling combination, which will create an unrivaled platform for growth and value creation."

Among the complaints listed in the filing, Allergan specifically accused Valeant and Pershing Square of circumventing a securities law designed to prevent companies from making tender offers or proxy solicitations based on or while knowing non-public information. According to the lawsuit, Pershing Square, with a small contribution from Valeant, created a shell company in February and began accumulating Allergan shares, with the investor and Valeant signing an agreement stipulating that they would not make a tender offer for the US firm.

The lawsuit further states that the shell company failed to disclose Valeant's capital contribution to the fund until April, with Pershing Square only disclosing that its stake in Allergan had exceeded 5 percent on April 21, one day before Valeant announced its initial tender offer for Allergan. "Valeant and Pershing Square's construction of a shell entity through which to act, and their self-serving description of that relationship through which they have sought to mask these facts, does not and cannot legitimise their unlawful conduct," Allergan remarked.

Last month, Valeant initiated an exchange offer taking its most recent offer, comprising $72 in cash plus 0.83 Valeant common shares, in addition to a contingent value right of up to $25 per share, directly to Allergan shareholders. Separately, Pershing Square has called for a special shareholder meeting to oust select Allergan shareholders, following a disclosure by the American drugmaker that the meeting would not trigger a previously enacted poison pill takeover defence.

BMO Capital Markets analyst David Maris suggested that the lawsuit could delay any possible takeover until at least 2015 noting that "Allergan believes that no shareholder vote will take place until this suit is resolved." Maris further commented "even if an investor thinks Allergan does not stand a 100 percent chance of winning, but 50 percent or 30 percent or even 10 percent, the likelihood of a deal closing has just been reduced by whatever chance one assumes Allergan wins."

Allergan's board has unanimously rejected the offer in June, which it described as "grossly inadequate." The company, which has repeatedly criticised Valeant's business model, recently announced that it was eliminating 1500 positions as part of a restructuring plan.

For related analysis, see ViewPoints: Allergan delivers cost cuts, but acquisition of its own still needed to derail Valeant's approach.

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