The SEC is investigating Bill Ackman and Canadian pharmaceutical company Valeant for their hostile pursuit of Allergan , another pharmaceutical company, according to a report by Dow Jones.
Allergan has already filed suit against both Ackman and Valeant for insider trading. It alleges that Ackman and Valeant violated specifically SEC rule 14 e-3, which has to do with making tender offers for companies based on or while knowing material non-public information.
SEC will be looking into the same issue, but the investigation — which is civil — is at an early stage and may not lead to enforcement action.
Valeant and Ackman announced that they would team up in a “friendly merger” attempt between Valeant and Allergan on April 22nd of this year. At that point, Pershing Square, Ackman’s hedge fund, had purchased just under 10% of Allergan ‘s stock and held it in an LLC called PS Fund 1.
PS Fund 1 had completed its purchase of Allergan stock on April 21st, according to Allergen’s lawsuit.
At issue here is whether or not Ackman and Valeant conspired to make a tender offer for Allergan before the public had knowledge — which is a violation of SEC Rule 14 e-3.
Allergan alleges that Ackman and Valeant started talking about the deal as early as February, and knew they would face a hostile takeover — forcing them to make a tender offer for the firm. Valeant is also a member of PS Fund 1, but the two parties signed a document not make a tender offer for Allergan.
As Dealbook’s Andrew Ross Sorkin pointed out, though, Pearson said on a conference call later:
“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.”
Valeant and Ackman have had to go directly to Allergan’s shareholders because the company itself has fought them every step of the way. It has said that Valeant is a serial acquirer with almost no organic growth that needs to make acquisitions to survive. Once Valeant owns a company, according to Allergan, it slashes its research and development and gobbles up its products, raising their prices until their patents wear out.
Allergan isn’t the only one saying this either. Famed short-seller Jim Chanos of Kynikos Associates, also believes Valeant is an “accounting rollup” and is shorting the stock.
In a statement, Ackman, Pershing Square and Valeant called the lawsuit “frivolous.”
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