- The billionaire investor Bill Ackman and his firm, Pershing Square – along with Valeant Pharmaceuticals – will pay just under $US300 million to settle an insider-trading suit over their attempt to buy the pharmaceutical firm Allergan in 2014.
- Ackman will pay the lion’s share, contrary to a previous agreement he struck with Valeant.
- This is yet another in a series of missteps since Ackman partnered with Valeant that have tarnished his reputation.
A settlement has been reached in the insider-trading case against Bill Ackman’s hedge fund, Pershing Square, and Valeant Pharmaceuticals.
“Pershing Square and Valeant have agreed to split the $US290 million total settlement such that Pershing Square will pay $US193.75 million and Valeant will pay $US96.25 million,” Pershing said in a press release.
This is a departure from the settlement agreement the two parties reached months ago.
“While Valeant had originally agreed to pay 60% of the cost of the settlement, Valeant and Pershing Square had different views on the desirability and timing of settling the case, which previously prevented settlement,” the release said. “On December 19, 2017, Pershing Square acquired control of the settlement of the litigation in exchange for agreeing to pay a greater percentage of the settlement amount.”
Valeant’s stock dipped ever so slightly on the news.
The real loser here is Ackman, whose reputation as a Wall Street wunderkind has taken hit after hit since he teamed up with Valeant and its former CEO, Michael Pearson, in 2014. In his business, money can sometimes last longer than an even more important currency: being right.
And after the series of years Ackman has had, he needs to be right about something – anything – soon, or resign himself to watching his capacity to move the market with a single word fade to nothing.
Following the activist-investor playbook
You’ll recall why this insider-trading suit, brought by investors in the pharmaceutical firm Allergan, came about in the first place.
During a 2014 hostile-takeover attempt, instead of buying Allergan outright, Valeant secretly teamed up with Ackman, who purchased a large chunk of Allergan shares.
Ackman’s stake was disclosed alongside Valeant’s hostile-takeover offer, and – surprise! – the billionaire said he would vote his newly acquired Allergan shares in support of the sale to Valeant.
Ackman then pulled out the activist-investor playbook to pressure Allergan to accept an offer from Valeant. He wrote nasty letters describing Allergan’s “incredibly inappropriate” behaviour as it sought to fend off the takeover by a company that was known for slashing research-and-development spending and jacking up drug prices.
That didn’t work.
Allergan was eventually rescued by a white knight, and Ackman, still an Allergan shareholder, made a bundle – about $US2.6 billion by one count.
Valeant profited a great deal too, because its deal with Ackman meant it got a portion of his profits.
Repercussions for next year
The rest is investment history.
Ackman, who hadn’t invested in Valeant during the Allergan attempt, became one of its biggest shareholders – so Pershing Square was one of the biggest losers when high-flying Valeant collapsed 90% from 2015 to 2016 after fraud was discovered at the company.
Now, in 2017, Ackman will pay the lion’s share to settle insider-trading claims.
It’s understandable – a trial would be arduous, expensive, and most likely embarrassing. It would only turn what has been a difficult year for Pershing into something of a disaster. In November, the firm lost its proxy battle for three seats on the board of the data-processing company ADP, which said only 20% of shareholders supported Ackman.
Shareholders simply weren’t buying what Ackman, a hero of the financial crisis, was selling.
Pershing’s press release says the fund will take only a 1.32% hit to its net asset value – but none of this will help Ackman’s reputation.
Everyone on Wall Street has seen companies skate by and avoid taking responsibility for reprehensible behaviour. And everyone walking planet earth has heard this before:
“We continue to believe the case had absolutely no merit,” Ackman said in the release. “We decided, however, that it was in the best interest of our investors to settle the case now instead of continuing to spend substantial time and resources pursuing the litigation.”
Again, that’s all very fair. But on Wall Street, settlements like this are paid for in more than money. Imagine the market like a high-school cafeteria – hedge fund billionaires, I promise you, aren’t much better than mean girls.
The next time Ackman walks in to grab a PB&J, everyone will probably stop talking – and not in a good way.