John Paulson Has A Plan To Rescue His Biggest Stock Position, And Bill Ackman Won't Like It

Allergan Inc shareholder Paulson & Co is urging the Botox maker to merge with specialty pharmaceutical company Shire Plc as a potential alternative to a deal with hostile bidder Valeant Pharmaceuticals, according to two people familiar with the matter.

The hedge fund, which is Allergan’s third largest shareholder, told Allergan CEO David Pyott that it would support a deal with Shire, the sources said.

The deal would not be structured as a so-called tax inversion, the people said. It could not be learned whether Allergan would pursue such a deal.

Back in June, Paulson had a totally different view on who Allergan should merge with. At CNBC’s Delivering Alpha Conference he said that Allergan should sell itself to Valeant, a deal that is also supported (financially) by Paulson’s fellow hedge fund manager, Bill Ackman.

So far Allergan has resisted Valeant’s advances and indicated that it’s looking for another buyer. Allergan argues that Valeant has no organic growth and uses its acquisitions to hide that fact. Short-seller Jim Chanos has made the same argument, calling Valeant an accounting roll-up.

Paulson’s new plan for Shire comes as fellow pharmaceutical company AbbVie’s $US54 billion deal to buy Shire is close to unravelling after the U.S. government changed the rules governing tax inversions.

Paulson suffered over $US780 million in paper losses after that news broke last week.

Allergan and Paulson declined to comment.

Valeant reported earnings Monday morning, and much of the following conference call was spent discussing wehther or not Ackman — who was in the company’s offices the night before — and the company would up their bid for Allergan. Earlier this month it was raised to $US191 a share to its original April bid of $US177 a share.

Ackman and Valeant CEO Michael Pearson have said that they will not overpay for the stock.

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