Dealpolitik: Pershing Square and Valeant Zig Zag Toward an End Game
By Ronald Barusch
Pershing Square founder and CEO William Ackman —Bloomberg News
In a series of moves worthy of a WWE tag team wrestling match, Pershing Square Capital Management LP and Valeant Pharmaceuticals International Inc.have zigged and zagged as they try to move in on an acquisition of Allergan Inc. by Valeant.
There still could be more zigging and zagging since Valeant has not yet declared that the new bid is its best and final offer as it continues to press to “sit down with either management or the board and reach a final negotiation on this offer.”
But the Valeant path is now clear.
These gambits began last Wednesday when Valeant increased the cash portion of its bid by $10 per share. That bump was apparently poorly received by Allergan shareholders.
To encourage Valeant to boost its bid, Pershing committed to take a fixed number of Valeant shares for its Allergan shares and none of the cash Valeant is offering to other shareholders. That would give Pershing less value (at today’s market prices) than other shareholders.
There may be less to Pershing’s agreement to take a discount than meets the eye from a legal perspective. The agreement, which was filed with the SEC on Monday, is limited to a transaction “on the terms announced by [Valeant] in its press release of May 30, 2014.” Successful hostile deals tend to end up as negotiated transactions with at least some adjustment in terms in return for the target capitulating. Pershing may feel a need optics-wise to take fewer Valeant shares than other shareholders even if terms change, but that’s not its obligation.
Following Pershing’s actions, Valeant again raised its bid.
Meanwhile, on Monday Pershing announced it would seek a special meeting of Allergan shareholders to, among other things, throw out six of the nine Allergan directors.
It’s not a simple process. Pershing will need holders of at least 25% of the Allergan shares to sign what is an unusual and complex questionnaire. And Allergan bylaws require a representation that a requesting shareholder intends to hold its shares through the special meeting and make continuing disclosures on share ownership.
Also, Allergan can call its own special meeting in lieu of the meeting Pershing is seeking and thereby delay the meeting. Valeant said in its Monday slide presentation that even this replacement meeting would have to be held no later than November.
Finally, Valeant said Monday it is preparing to launch a hostile exchange offer for Allergan stock. That in itself does not place additional pressure on Allergan because such an exchange offer cannot be completed without Allergan board approval. Allergan has adopted a poison pill defense that effectively prevents a shareholder from acquiring 10% of Allergan without board approval. But it is an indication of Valeant’s determination.
And yet, the exchange offer poses challenges for Valeant and Pershing: It is likely to focus more controversy on Valeant and Pershing’s unique partnership under which Pershing bought shares before Valeant announced its plans to bid for Allergan. There is an SEC rule that prohibits trading by a person who has material nonpublic information “If any person has taken a substantial step or steps to commence” an exchange offer. Back in February, when Pershing and Valeant signed up their agreement to work together, they acknowledged to each other “that no steps have been taken towards a tender or exchange offer.”
Yet that agreement contained provisions on how such an exchange offer would be made. Assuming Allergan continues to oppose the Valeant bid, it is a good bet that Allergan will cry foul now that the steps started earlier this year have resulted in Valeant announcing its intention to commence an exchange offer.
The path to victory has been laid out by Valeant and Pershing. But it is long and complex and Allergan will have a lot of time to come up with counter measures.
By Ronald Barusch
Pershing Square founder and CEO William Ackman —Bloomberg News
In a series of moves worthy of a WWE tag team wrestling match, Pershing Square Capital Management LP and Valeant Pharmaceuticals International Inc.have zigged and zagged as they try to move in on an acquisition of Allergan Inc. by Valeant.
There still could be more zigging and zagging since Valeant has not yet declared that the new bid is its best and final offer as it continues to press to “sit down with either management or the board and reach a final negotiation on this offer.”
But the Valeant path is now clear.
These gambits began last Wednesday when Valeant increased the cash portion of its bid by $10 per share. That bump was apparently poorly received by Allergan shareholders.
To encourage Valeant to boost its bid, Pershing committed to take a fixed number of Valeant shares for its Allergan shares and none of the cash Valeant is offering to other shareholders. That would give Pershing less value (at today’s market prices) than other shareholders.
There may be less to Pershing’s agreement to take a discount than meets the eye from a legal perspective. The agreement, which was filed with the SEC on Monday, is limited to a transaction “on the terms announced by [Valeant] in its press release of May 30, 2014.” Successful hostile deals tend to end up as negotiated transactions with at least some adjustment in terms in return for the target capitulating. Pershing may feel a need optics-wise to take fewer Valeant shares than other shareholders even if terms change, but that’s not its obligation.
Following Pershing’s actions, Valeant again raised its bid.
Meanwhile, on Monday Pershing announced it would seek a special meeting of Allergan shareholders to, among other things, throw out six of the nine Allergan directors.
It’s not a simple process. Pershing will need holders of at least 25% of the Allergan shares to sign what is an unusual and complex questionnaire. And Allergan bylaws require a representation that a requesting shareholder intends to hold its shares through the special meeting and make continuing disclosures on share ownership.
Also, Allergan can call its own special meeting in lieu of the meeting Pershing is seeking and thereby delay the meeting. Valeant said in its Monday slide presentation that even this replacement meeting would have to be held no later than November.
Finally, Valeant said Monday it is preparing to launch a hostile exchange offer for Allergan stock. That in itself does not place additional pressure on Allergan because such an exchange offer cannot be completed without Allergan board approval. Allergan has adopted a poison pill defense that effectively prevents a shareholder from acquiring 10% of Allergan without board approval. But it is an indication of Valeant’s determination.
And yet, the exchange offer poses challenges for Valeant and Pershing: It is likely to focus more controversy on Valeant and Pershing’s unique partnership under which Pershing bought shares before Valeant announced its plans to bid for Allergan. There is an SEC rule that prohibits trading by a person who has material nonpublic information “If any person has taken a substantial step or steps to commence” an exchange offer. Back in February, when Pershing and Valeant signed up their agreement to work together, they acknowledged to each other “that no steps have been taken towards a tender or exchange offer.”
Yet that agreement contained provisions on how such an exchange offer would be made. Assuming Allergan continues to oppose the Valeant bid, it is a good bet that Allergan will cry foul now that the steps started earlier this year have resulted in Valeant announcing its intention to commence an exchange offer.
The path to victory has been laid out by Valeant and Pershing. But it is long and complex and Allergan will have a lot of time to come up with counter measures.