Things could have been totally different for Valeant Pharmaceuticals if former CEO Michael Pearson had stuck to his original guns about hedge fund billionaire Bill Ackman.
Apparently, he didn’t want Ackman anywhere near Valeant when they first started talking. Neither did Valeant’s board.
This weird tension is recounted in an amended complaint to the ongoing lawsuit between hedge fund billionaire Bill Ackman’s Pershing Square, Valeant, and investors in Allergan Pharmaceuticals.
It must’ve been love
Valeant tried to acquire Allergan with Ackman’s help back in 2014, and now investors including State Teachers Retirement System of Ohio and Iowa Public Employees Retirement System are accusing them of insider trading.
In a nutshell, the plaintiffs allege that Ackman and Valeant (whose CEO at the time was Michael Pearson) teamed up in a hostile takeover. Valeant told Ackman that it would be attempting the hostile takeover, then Ackman allegedly bought up Allergan stock to compel the company to take Valeant’s offer.
This is all based on SEC Rule 14 e-3. Basically, if company A is planning to take over company B, anyone with knowledge of that takeover can’t trade in company B once company A has started to make moves to bid for the company.
The deal never happened, but Ackman (who got a nice pay day when a white knight bought Allergan instead) and Pearson notoriously skipped off into the sunset together, becoming near-partners in presiding over Valeant’s troubles.
But things could have been very different.
According to an amended complaint filed in the insider trading case, Pearson didn’t want Ackman anywhere near his company.
From the complaint:
“It was also clear from the outset that Valeant — not Pershing — would be acquiring Allergan, and that Pershing would have no control over the offer and no role in the combined company if the deal closed. In fact, Pearson flatly rejected the idea that Pershing or Ackman would have any say in managing the combined company if Valeant’s bid was successful, later testifying that “I don’t want [Ackman] on our board and our board doesn’t want him on our board,” and that Valeant was firmly opposed to anyone else from Pershing having any role whatsoever in the combined company.
The fact that Pershing was to play no role in the combined company is not surprising given that neither Ackman nor Pershing had any prior experience investing in a pharmaceutical company, let alone running one. Indeed, Ackman told investors during an April 22, 2014 conference that “we [had] never looked in pharmaceuticals before,” explaining that “I [had] not actually looked at a pharmaceutical Company of any consequence” before meeting with Pearson at the beginning of the year.”
But it’s over now
Valeant came under fire in October 2015 when accusations of malfeasance from short seller Andrew Left of Citron Research combined with government scrutiny over its drug pricing practices to bring the stock careening down.
Pearson was forced to exit the company in the fallout, and now Ackman and his allies are all over the company’s board.
Certainly not what Pearson intended at the outset.
He likely also didn’t intend to sell about $100 million worth of Valeant stock earlier this week, but he did, citing “personal reasons.”
“I continue to believe in Valeant, Joe and the rest of the management team,” said J. Michael Pearson in a press release. “While I trimmed my ownership position for personal reasons, I plan on holding my remaining shares until the company recovers and returns to being traded on fundamentals.”
Pearson is required to hold 1 million Valeant shares for the next two years, according to his departure agreement with the company. He is also not allowed to disparage Valeant, which is paying Pearson $83,333 a month to continue on as a consultant.
Ackman said on CNBC’s Halftime report on Thursday that the sale was “sad.” He also explained that Pearson had to sell his shares in order to pay off taxes from a previous forced Valeant stock sale. Last year, when the company’s stock plummeted, Goldman Sachs called in a $100 million loan it had made to Pearson. Pearson used that money to make a donation to his alma mater, Duke University.
“I think Mike was forced to sell,” said Ackman to CNBC. “The government unfortunately doesn’t wait for you to pay your taxes.”
Yes that is unfortunate.