Published On: Wed, Aug 6th, 2014

Bill Ackman Slams Allergan’s “Scorched Earth Policy” In Its Newest Lawsuit

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Allergan’s newest strategy to fend off a $51 billion hostile takeover bid from Valeant Pharmaceuticals involves filing a suit in a California court. The Botox manufacturer claims that Pershing Square Capital manager Bill Ackman  bought a large stake in Allergan before the takeover plans by Valeant were announced, and that this purchase was unethical, because it suggests Ackman was aware of Valeant’s plans prior to the public bid. Valeant is accused of cooperating with Ackman, who bought 25 million shares valued at $3.2 billion, and the investment grew 15% after the hostile takeover bid was announced. Allergan charges Valeant and Ackman with shortchanging  shareholders, but both insist that they waited the 10 day grace period, as required by law, before disclosing Ackman’s purchase to the Federal Trade Commission.

Allergan’s lawsuit follows Valeant’s complaints that Allergan slandered its company in CEO David Pyott’s public criticisms of Valeant’s aggressive approach to acquiring companies and drastically cutting budgets. Pyott indicated in an interview on Jim Cramer’s Mad Money that a takeover by Valeant would severely compromise the company’s research and development spending and dramatically undervalues the company.

The current lawsuit is seen as a delaying tactic by critics of Allergan, and Pershing Square and Valeant say Allergan is unjustly trying to avoid input by its shareholders on the possible deal. Ackman said Allergan’s lawsuit is a “desperate attempt to interfere with shareholder’s efforts to call a special meeting, ” and Ackman added, “The scorched-earth approach is evidence of management’s and the board’s further entrenchment.”

Allergan has cut 1, 500 jobs in an effort to raise more capital to return to shareholders. Allergan management remains steadfast in resisting the takeover, and has called Valeant “an empire built on sand.”

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