It’s another week, another scandal for Valeant (VRX). On Wednesday U.S. District Judge David Carter in Santa Ana, California, said Valeant and Pershing Square’s (PSHZF) Bill Ackman must face a lawsuit accusing them of insider trading in botox maker Allergan (AGN) prior to Valeant’s unsuccessful takeover bid:
The lawsuit was filed on behalf of investors who sold Allergan shares in the two months before the defendants on April 22, 2014 announced an unsolicited $51 billion bid for Allergan.
Pershing had by then quietly amassed a 9.7 percent stake in Allergan, which soared in value after the bid was announced. Investors said Pershing bought those shares knowing that Valeant was preparing a bid that could, and later did, become hostile … the judge, without ruling on the merits, found “serious questions” as to whether “substantial steps” had been taken toward a possible hostile bid, which would have required Valeant to disclose more or Ackman to stop his buying.
Valeant and Ackman have claimed no breach of duties by sharing information before the takeover bid became public knowledge. Now it seems Judge Carter will have the final say.
The Situation
Ackman’s Pershing Square acquired a 10% stake ($5.3 billion) in Allergan in 2014. In October 2014 Judge Jackson had to decide whether Ackman could vote his 10% stake to seal a hostile bid by Valeant. Allergan countered that Ackman began acquiring his stake as early as February 2014 when he knew a takeover bid was imminent, and would create a windfall for his shares; in effect Ackman relied on inside information in acquiring Allergan shares. It also sought a court order blocking Ackman from voting his shares pursuant to a decision that could have removed six Allergan directors who opposed Valeant’s takeover bid.
Judge Carter later agreed to allow Ackman to vote his shares; however, on November 17th Allergan agreed to a $219 per share bid from Actavis which trumped Valeant’s $180 per share bid. Nonetheless, Ackman’s Pershing Square stake stood to net $6 billion, of which Ackman said he would share 15% with Valeant.
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