Allergan 'insider trading' lawsuit piles uncertainty onto Valeant's takeover try

Bill Ackman

Valeant and Bill Ackman's $54 billion bid for Allergan is definitely a bit unconventional. But is it insider trading? Allergan thinks so--and it's suing to prove it, a move that could hurt Valeant's chances to seal the deal.

In a complaint filed Friday, the California drugmaker alleged that Ackman and his hedge fund, Pershing Square Capital Management, colluded with Valeant ($VRX) to pick up shares as the Canadian drugmaker was preparing its tender offer.

Ackman did 97% of the buying--nabbing 25.4 million Allergan ($AGN) shares for $3.22 billion, Bloomberg notes--all the while "strenuously maintaining the fiction that the purchases were by Valeant," Allergan said in its complaint. Those shares were worth 15% more after Valeant announced its merger proposal--an on-paper gain for Ackman worth about $1 billion.

"Unfortunately for them, the clear requirements of the federal securities laws cannot be so easily defeated by a 'now you see it, now you don't' sleight of hand," the complaint reads.

In a fashion that's become typical over months of barb-trading, Valeant hit back Friday, labeling the lawsuit "frivolous" and a "desperate Allergan attempt" to interfere with the special shareholder meeting it's trying to secure in order to replace Allergan's board and strike its takeover defenses.

"Allergan is threatened by our progress toward calling the special meeting," Ackman said in a statement. "This scorched-earth approach is further evidence of the board's and management's further entrenchment."

Whether or not a delay is Allergan's desired outcome, it just might be an effect of the litigation, BMO Capital Markets analyst David Maris wrote in a note to clients. "Although Allergan is seeking an expedited review, we do not think it is likely to be resolved until 2015," he said.

Valeant CEO J. Michael Pearson

According to Maris, the lawsuit adds another layer of uncertainty that could thwart the buyout, too. "Even if an investor thinks Allergan does not stand a 100% chance of winning, but 50% or 30% or even 10%, the likelihood of a deal closing has just been reduced by whatever chance one assumes Allergan wins," he wrote.

Nonetheless, Valeant CEO J. Michael Pearson, who has said he expects to rally the necessary shareholder support to call the meeting--and, once it takes place, to get a deal done--isn't backing down. "We remain committed to pursuing this compelling combination, which will create an unrivaled platform for growth and value creation," he said in a statement.

- read Allergan's release
- read Valeant's release
- see Bloomberg's take

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