UPDATE: Allergan Has Filed Federal Suit Against Pershing, Valeant Pharma, Cites Violations of Federal Securities Laws
Allergan, Inc. (NYSE: 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
* 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
* 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
* 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;
* 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.
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