Published On: Sat, Jun 28th, 2014

Bill Ackman’s Pershing Square Gains Right To Solicit Special Meeting Of Allergan Shareholders Without Triggering Poison Pill In $51 Billion Takeover Battle

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Lawyers for Allergan, Valeant Pharmaceuticals and Pershing Square yesterday announced they had mutually agreed to a common understanding, without waiting for a ruling by a Judge, that certain language contained in Allergan’s anti-takeover shareholder rights plan, which concerns procedures for the proxy solicitation of shareholders to call a special meeting of Allergan’s shareholders, does not all by itself trigger Allergan’s poison pill.

Two weeks ago lawyers for Bill Ackman’s activist hedge fund Pershing Square went to court to seek “clarification” of parts of the shareholder rights plan, a.k.a. “poison pill, ” which had been put in place by Allergan, a specialty pharmaceuticals company and maker of Botox.

The poison pill provides for potential massive dilution of predators acquiring, either alone or acting in concert, more than 10% of Allergan’s shares. It had been put in place by Allergan as a defense initially against demands for merger talks made by Valeant Pharmaceuticals, of Laval Quebec, led by CEO Mike Pearson, with whom Pershing Square are indeed acting jointly and in concert.

Pershing Square had itself also quietly assembled a position of just under 10% of Allergan’s shares before their interest in acting with Valeant to undertake the acquisition of Allergan was announced.

Valeant and Ackman subsequently initiated a full-blooded US$51 billion hostile takeover bid, which they are intending to take directly to shareholders asking them to tender their shares directly.

Even before announcing their hostile bid, Valeant and Ackman had been seeking to wage a proxy war with Allergan by seeking to convene a special meeting of its shareholders, where it could attempt to unseat the company’s current slate of directors in favor of one more sympathetic to their views. Calling such a special meeting requires a 25% vote by the company’s shareholders, under its by-laws.

Under the terms of the Allergan poison pill it had been unclear whether proxy solicitation of a special meeting would by itself trigger the poison pill, which would then have been prohibitively expensive for investors potentially sympathetic to Valeant’s views, including of course Pershing Square and Valeant themselves as well.

Accordingly Ackman two weeks ago sued in Delaware court to remove the legal ambiguities around the calling of such a special meeting. Yesterday Pershing Square and Valeant announced they had instead managed to come to a common understanding with Allergan, without waiting for a ruling by a Judge, of the language of the shareholder rights plan, and which crucially clarifies that solicitation of a special meeting does not all by itself trigger the poison pill.

To set the seal on this rare piece of mutual legal understanding, both sides signed a stipulation order approved by Chancellor Andre Bouchard of the Delaware Court of Chancery.

Bill Ackman is obviously pleased with the outcome as it removes one more roadblock to trying to convene such a meeting. Allergan’s lawyers were probably not too displeased with the outcome either as, in addition to having caused some delay, which is partially the purpose of such legal skirmishes in any case, the common understanding also added the important proviso that shareholders agreeing to call for such a meeting must not already have made a choice to commit to tender their shares to the bid – which certainly would trigger the poison pill.

Of course investors may dissemble to some extent, but as long as the votes are not cast in stone in advance then Allergan can, in principle, still gain a dissenting shareholder’s vote at such a meeting, either by convincing them of its arguments or, more importantly perhaps, by in the mean time coming up with a better deal for them to consider.

Since the company has been put in play, one can be sure that Allergan’s investment bankers continue to scour the landscape for either a white knight to come along and pay more, or for a suitable takeover target of their own for Allergan to go after who are willing to make a deal, and thus to spoil Bill Ackman’s party.

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