Andrew Ross Sorkin over at Dealbook is out with his take on hedge fund manager Bill Ackman and pharmaceutical company Valeant’s hostile tag-team attempt to takeover Allergan.
“…something hasn’t smelled right about these clever machinations,” Sorkin writes. “An analyst at Sanford C. Bernstein quite rightly titled a report ‘How Can It Be Legal?'”
It’s a question very much up for debate since last week, when Allergan submitted to a U.S. Court that the takeover attempt is, in fact, illegal.
In a lawsuit, the pharma company alleged that Ackman — whose hedge fund Pershing Square owns just under 10% of Allergan — and Valeant were in violation of SEC Rule 14 e-3, which prohibits entities on the verge of making a tender offer — an offer bypassing the board and going directly to shareholders — for a company from disclosing that information.
Ackman and Valeant have called the case “frivolous” and “shameless attempt” to delay the takeover.
In February, Allergan’s complaint alleges, Pershing Square, with a minuscule contribution promised from Valeant, created a shell company called PS1 LLC. The fund then started buying Allergan shares after Valeant started showing signs that it would make a tender offer for Allergan, according to the lawsuit.
Meanwhile, Pershing and Valeant allegedly signed an agreement that they would not make a tender offer for Allergan. Allergan submits that that agreement was an attempt to cover their tracks.
And Sorkin agrees, pointing out that Pearson said on a conference call:
“On April 22, we announced our offer for Allergan. We suspected at the time it would ultimately have to go directly to Allergan shareholders. We were correct.”
The day before, on April 21st, according to the lawsuit, Ackman’s hedge fund Perhsing Square, amassed a 9.7% stake in Allergan.
“The stratagem emphasises the crying need for the SEC to bring its early-warning rules into the 21st century,” wrote a team of lawyers from Wachtel, Lipton, Rosen and Katz shortly after the deal was announced. That team included famed anti-activist investing (no fan of Bill Ackman) attorney, Martin Lipton.
But they ultimately determined it wasn’t illegal — just questionable.
This is what a lot of lawyers were saying after the deal was announced. It’s why Sorkin called the deal “too clever by half.”
It’s why, when it came time for Ackman’s and Valeant’s PR people to respond to Allergan’s lawsuit, these ‘it’s not legal but it is questionable’ memos were attached to their statement.
But as Sorkin points out, and Lipton and his team wrote — “The structure is crafty, and good for Valeant and Pershing Square (as long as no bad facts emerge, such as undisclosed arrangements, that could get them in trouble).”
Quite a caveat.
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