Shares of Zoetis ($ZTS) were on a tear Tuesday afternoon, rising 9% to $43.72, following news that Pershing Square's William Ackman had purchased $1.5 billion worth of the company's shares. Pershing Square later confirmed in a press release that it would be disclosing the purchase to the SEC Wednesday, and that it "intends to consult with Sachem Head Capital Management with respect to their investments in Zoetis." Ackman has worked with Sachem Head's Scott Ferguson to build a 10% stake in the animal health giant, which was spun off from Pfizer ($PFE) last year.
Late Friday night, Zoetis responded by adopting a one-year shareholder rights plan, more commonly known as a "poison pill." The plan would allow shareholders to buy preferred stock at a discounted price in the event that a single investor were to take a 15% or higher stake. Poison pills are meant to deflect hostile takeovers.
Ackman's plan may have been to pressure Zoetis to put itself up for sale to a pharma company such as Valeant ($VRX), according to anonymous sources who spoke to The Wall Street Journal. A spokesman for Zoetis declined to comment to the paper, saying only that the company had received a call from Ackman about the investment.
Ackman is among the most vocal activist shareholders on the Street these days, making waves most recently by working with Valeant to try to acquire Allergan ($AGN) for about $54 billion. Allergan agreed to hold a special meeting on the matter on Dec. 18, but asked a judge to block Pershing Square from voting, claiming that Ackman violated SEC rules in acquiring his Allergan shares. Ackman prevailed and will vote, though the judge acknowledged that his actions in the Valeant-Allergan drama raised "serious questions."
As for Zoetis, this is not its first brush with takeover talk. In September, analysts speculated that Bayer might use the proceeds from its planned divestiture of its plastics business to buy Zoetis, which has a market valuation of about $22 billion. That deal could make a ton of sense for Bayer, potentially catapulting the company from 5th place to the top of the animal health industry.
It's no surprise Zoetis has emerged as a takeover target. Despite competitive pressure and other challenges, the company said last week that its third-quarter revenues rose 10% year over year to $1.2 billion and its earnings per share skyrocketed 27% to 33 cents, beating analyst estimates. The company also boosted its 2014 sales estimates, telling investors the company expects to pull in at least $4.7 billion in revenues this year, up from $4.56 billion last year.
- access Pershing Square's press release here
- here's the release from Zoetis
- here's the WSJ story (sub. req.)
- read more at the New York Times (sub. req.)
Special Report: Top 10 animal health companies of 2013 - Zoetis
Editor's note: This story has been updated to include the news about Zoetis's shareholder rights plan.