http://finance.yahoo.com/news/allergan-sues-valeant-ackman-alleged-154701470.html
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Allergan sues Valeant, Ackman for alleged insider trading
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Allergan, Inc. (AGN) (“Allergan” or the “Company”) today filed a lawsuit in the United States District Court for the Central District of California against Valeant Pharmaceuticals International, Inc. (“Valeant”), Pershing Square Capital Management, L.P. (“Pershing Square”) and its principal, William A. Ackman, alleging that Valeant, Pershing Square and Mr. Ackman violated federal securities laws prohibiting insider trading, engaged in other fraudulent practices, and failed to disclose legally required information.
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. The Allergan Board of Directors is strongly committed to protecting the stockholder franchise and believes it is important that the rights of the Company’s stockholders not be infringed by the actions of one hedge fund that significantly profited (to the detriment of other stockholders and the market) by trading in Allergan securities while in possession of material non-public information regarding Allergan. Specifically, as the complaint alleges, between February 2014 and April 2014, Pershing Square purchased Allergan stock and securities then valued at over $3.2 billion from unknowing Company stockholders while fully aware of Valeant’s nonpublic takeover intentions, thereby securing for itself and depriving the selling stockholders of value appreciation worth approximately $1.2 billion upon Valeant’s announcement of its initial offer on April 22, 2014.
In its complaint, Allergan is seeking, among other remedies, a declaration from the court that Pershing Square and Valeant violated insider trading and disclosure laws, and an order rescinding Pershing Square’s purchase of the Allergan shares it acquired illegally. Allergan reserves the right to seek additional remedies against all appropriate parties.
Details of the Complaint
The complaint alleges that Valeant, Pershing Square and Mr. Ackman, violated Sections 13(d), 14(a), and 14(e) of the Securities Exchange Act of 1934 (the “Exchange Act”), which prohibit insider trading and require full and fair disclosure for stockholders in the context of proxy solicitations and tender offers, and the rules promulgated by the U.S. Securities and Exchange Commission (“SEC”) under those Sections, including Rule 14e-3.
The complaint alleges, among other things, that:
Valeant always directed the unsolicited transaction to acquire Allergan toward a tender offer. Valeant’s Chairman and Chief Executive Officer, J. Michael Pearson, confirmed the foregoing on June 17, 2014, when he said of Valeant’s initial proposal: “We suspected at the time it would ultimately have to go directly to Allergan shareholders. We were correct.”
Debt-laden Valeant did not have the resources to acquire Allergan, and therefore sought third-party financing assistance from Mr. Ackman and his hedge fund, Pershing Square, which are wholly separate persons from Valeant.
By the time Valeant and Pershing Square entered into their financing agreement, Valeant had taken what prior courts have held to be substantial steps toward a tender offer, including: (i) hiring financial and legal advisors, (ii) holding multiple board and committee meetings, and (iii) negotiating the respective financial commitments of the parties.
After Valeant shared its nonpublic takeover intentions with its third-party financier, and after taking these substantial steps toward a tender offer, an LLC entity formed and controlled entirely by Pershing Square – PS Fund 1, LLC – purchased significant amounts of Allergan stock and other securities using zero-strike price call options and equity forwards, without disclosing Valeant’s intentions to the market. As a result, the parties who sold such securities to PS Fund 1 were significantly damaged.
An examination of trading activity between February 2014 and April 2014 establishes that PS Fund 1, at the direction of Mr. Ackman and Pershing Square, was the sole purchaser of Allergan stock and other securities, and that Valeant purchased no shares of Allergan stock or other securities.
Valeant’s belated addition as a de minimis investor in PS Fund 1 does not change these facts. Indeed, by the time Valeant was added as a member of and contributed capital to PS Fund 1, the fund had already acquired more than 11 million Allergan shares or options.
The terms of the parties’ agreement and the parties’ subsequent actions make clear that Valeant, and not PS Fund 1, Pershing Square or Mr. Ackman, was and has continued to be the sole person seeking to acquire Allergan.
Mr. Ackman has repeatedly represented that he was simply “Allergan’s largest shareholder” interested in “maximiz[ing] value for all Allergan shareholders,” whether through a transaction with Valeant or by “identifying a superior transaction with another company.”
PS Fund 1’s rapid acquisition of a total of 9.7% of outstanding Allergan stock, while in possession of material nonpublic information, violated Rule 14e-3.
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 legitimize their unlawful conduct.
Rule 14e-3, promulgated by the SEC under the Exchange Act, provides that, where any “offering person” has taken “a substantial step or steps” to commence a tender offer of a target company, any “other person” who is in possession of material nonpublic information relating to that tender offer is prohibited from purchasing or selling any securities of the target company, unless the information is publicly disclosed within a reasonable time prior to the purchase or sale. The complaint alleges that Valeant, who was and is the “offering person” within the meaning of this rule, took substantial steps to commence a tender offer for Allergan and tipped Mr. Ackman (and the entities he controls) – the “other person” within the meaning of this rule – to those otherwise undisclosed intentions, and that Mr. Ackman then traded in Allergan securities on the basis of this material, nonpublic information.
The complaint also alleges that in furtherance of their takeover efforts, Valeant and Pershing Square have:
Released demonstrably false and misleading proxy solicitation materials that misstate their relationship and intentions regarding a transaction; and
Repeatedly misstated the certainty of the proposed transaction and the value of the consideration being offered to Allergan stockholders, among other material facts – information that is critical to Allergan stockholders in considering whether to deliver consents in favor of a special stockholder meeting, and whether to tender their shares to Valeant in an exchange offer.
Allergan fully supports the rights of its stockholders to call a special meeting in accordance with the Company’s charter and bylaws, and therefore will seek expedition of the federal court’s decision so that the Company can quickly resolve this matter and continue focusing on delivering enhanced value to all of its stockholders.
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. The Allergan Board of Directors is strongly committed to protecting the stockholder franchise and believes it is important that the rights of the Company’s stockholders not be infringed by the actions of one hedge fund that significantly profited (to the detriment of other stockholders and the market) by trading in Allergan securities while in possession of material non-public information regarding Allergan. Specifically, as the complaint alleges, between February 2014 and April 2014, Pershing Square purchased Allergan stock and securities then valued at over $3.2 billion from unknowing Company stockholders while fully aware of Valeant’s nonpublic takeover intentions, thereby securing for itself and depriving the selling stockholders of value appreciation worth approximately $1.2 billion upon Valeant’s announcement of its initial offer on April 22, 2014.
In its complaint, Allergan is seeking, among other remedies, a declaration from the court that Pershing Square and Valeant violated insider trading and disclosure laws, and an order rescinding Pershing Square’s purchase of the Allergan shares it acquired illegally. Allergan reserves the right to seek additional remedies against all appropriate parties.
Details of the Complaint
The complaint alleges that Valeant, Pershing Square and Mr. Ackman, violated Sections 13(d), 14(a), and 14(e) of the Securities Exchange Act of 1934 (the “Exchange Act”), which prohibit insider trading and require full and fair disclosure for stockholders in the context of proxy solicitations and tender offers, and the rules promulgated by the U.S. Securities and Exchange Commission (“SEC”) under those Sections, including Rule 14e-3.
The complaint alleges, among other things, that:
Valeant always directed the unsolicited transaction to acquire Allergan toward a tender offer. Valeant’s Chairman and Chief Executive Officer, J. Michael Pearson, confirmed the foregoing on June 17, 2014, when he said of Valeant’s initial proposal: “We suspected at the time it would ultimately have to go directly to Allergan shareholders. We were correct.”
Debt-laden Valeant did not have the resources to acquire Allergan, and therefore sought third-party financing assistance from Mr. Ackman and his hedge fund, Pershing Square, which are wholly separate persons from Valeant.
By the time Valeant and Pershing Square entered into their financing agreement, Valeant had taken what prior courts have held to be substantial steps toward a tender offer, including: (i) hiring financial and legal advisors, (ii) holding multiple board and committee meetings, and (iii) negotiating the respective financial commitments of the parties.
After Valeant shared its nonpublic takeover intentions with its third-party financier, and after taking these substantial steps toward a tender offer, an LLC entity formed and controlled entirely by Pershing Square – PS Fund 1, LLC – purchased significant amounts of Allergan stock and other securities using zero-strike price call options and equity forwards, without disclosing Valeant’s intentions to the market. As a result, the parties who sold such securities to PS Fund 1 were significantly damaged.
An examination of trading activity between February 2014 and April 2014 establishes that PS Fund 1, at the direction of Mr. Ackman and Pershing Square, was the sole purchaser of Allergan stock and other securities, and that Valeant purchased no shares of Allergan stock or other securities.
Valeant’s belated addition as a de minimis investor in PS Fund 1 does not change these facts. Indeed, by the time Valeant was added as a member of and contributed capital to PS Fund 1, the fund had already acquired more than 11 million Allergan shares or options.
The terms of the parties’ agreement and the parties’ subsequent actions make clear that Valeant, and not PS Fund 1, Pershing Square or Mr. Ackman, was and has continued to be the sole person seeking to acquire Allergan.
Mr. Ackman has repeatedly represented that he was simply “Allergan’s largest shareholder” interested in “maximiz[ing] value for all Allergan shareholders,” whether through a transaction with Valeant or by “identifying a superior transaction with another company.”
PS Fund 1’s rapid acquisition of a total of 9.7% of outstanding Allergan stock, while in possession of material nonpublic information, violated Rule 14e-3.
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 legitimize their unlawful conduct.
Rule 14e-3, promulgated by the SEC under the Exchange Act, provides that, where any “offering person” has taken “a substantial step or steps” to commence a tender offer of a target company, any “other person” who is in possession of material nonpublic information relating to that tender offer is prohibited from purchasing or selling any securities of the target company, unless the information is publicly disclosed within a reasonable time prior to the purchase or sale. The complaint alleges that Valeant, who was and is the “offering person” within the meaning of this rule, took substantial steps to commence a tender offer for Allergan and tipped Mr. Ackman (and the entities he controls) – the “other person” within the meaning of this rule – to those otherwise undisclosed intentions, and that Mr. Ackman then traded in Allergan securities on the basis of this material, nonpublic information.
The complaint also alleges that in furtherance of their takeover efforts, Valeant and Pershing Square have:
Released demonstrably false and misleading proxy solicitation materials that misstate their relationship and intentions regarding a transaction; and
Repeatedly misstated the certainty of the proposed transaction and the value of the consideration being offered to Allergan stockholders, among other material facts – information that is critical to Allergan stockholders in considering whether to deliver consents in favor of a special stockholder meeting, and whether to tender their shares to Valeant in an exchange offer.
Allergan fully supports the rights of its stockholders to call a special meeting in accordance with the Company’s charter and bylaws, and therefore will seek expedition of the federal court’s decision so that the Company can quickly resolve this matter and continue focusing on delivering enhanced value to all of its stockholders.
I want to know if this offense will send Pearson and Ackman to jail?
Many people hear Pearson say “We suspected at the time it would ultimately have to go directly to Allergan shareholders. We were correct.” on June 17th
He will be jailed for sure. It will take time but SEC will have to step in
He will be jailed for sure. It will take time but SEC will have to step in
Does this lawsuit stop the takeover bid until it is settled? How long could this possibly delay further attempts of the takeover?
This lawsuit will be an used to delay the special meeting till Jan 15 if assman + fat mikey are able to get 25 % votes by Aug 14
Worst case scenario - Allergan will use this lawsuit to delay the special meeting assuming Ackman and Valeant get 25 % votes
Best case scenario - Pershing has to return its profits to shareholders from whom it purchased the stock and options
If I was Valeant and knowing that I need periodic acquisitions to sustain my stock price, I would look at other large acquisitions. Especially considering Allergan has not yet used other cards like it's own acquisition, buyback which it will use if special meeting has to be called, special dividend etc. Valeant has already spent 1/2 year on this hostile ... would it spend another 1/2 year?
Pershing plans to return proxies by mid Aug. We will know in 2 weeks if he has votes for meeting.
Pearson is meeting with top Valeant investors on coming Monday and Tuesday. On Thursday 11 million Valeant shares were traded and some investors were selling big time.
Top question will be ... how long Valeant can wait for another acquisition. At the end of the day investors understand that Valeant is an acquisition machine and without new acquisition these investors will move to ENDO which is mini Valeant but more aggressive
Restructure and raise EPS - check
lawsuit to delay special meeting and wait for valeant to implode - check
raise enough doubts about valeant's accounting gimmicks - check
expose valeant's business model - check
buyback - in the works
special dividend - in the works
strategic acquisition - in the works
I think we got this one guys
Ackman will start dumping AGN soon
arbs are also leaving
Pearson will be left pronouncing optomology
lawsuit to delay special meeting and wait for valeant to implode - check
raise enough doubts about valeant's accounting gimmicks - check
expose valeant's business model - check
buyback - in the works
special dividend - in the works
strategic acquisition - in the works
I think we got this one guys
Ackman will start dumping AGN soon
arbs are also leaving
Pearson will be left pronouncing optomology
not unless sec and doj get involved
at the very least lawsuit will allow allergan to ask probing questions and delay special meeting
Another reason might be to act as a counter to the lawsuit that Pershing will file once Valeant withdraws from the bid. It is not a question if but when valeant withdraws
Good point. Valeant may go, but Ackman could remain as a problem.
It is cute how much you guys believe this deal will not get done.
So innocent. So naive. It's almost childlike. Like believing in the tooth fairy.
So innocent. So naive. It's almost childlike. Like believing in the tooth fairy.
With restructuring and lawsuit DP has DPed Valeant, Assman and Pearson
Makes sense. Valeant probably has an internal deadline for this deal.
And if they don't, Valeant probably drops their Allergan offer.