Dealmaking drugmakers 'blacklist' investors to fend off activists

Bill Ackman

With pharma M&A growing at a steady clip, pressure from activist shareholders is also reaching new heights. But drugmakers have a few tricks up their sleeves for warding off the unwanted attention, including blacklisting firms to prevent them from taking a stake in the company after a deal goes through.

As Bloomberg reports, at least four drugmakers in the past year have banned activist shareholders from buying shares in the company by placing them on no-go lists. Canadian pharma Concordia is the latest poster child for this move. In September, the company handed a 14% stake to buyout firm Cinven as part of its deal for Amdipharm Mercury. Under the terms of the deal, Concordia barred Cinven from transferring or reselling its shares to almost 60 firms, including those headed up by Bill Ackman, Carl Icahn and Dan Loeb, according to a regulatory filing seen by the news outlet.

But Concordia didn't stop there. The Ontario-based pharma also blocked Cinven from selling its shares to anyone on SharkWatch 50, a list of the largest activists put together by financial analytics outfit FactSet Research Systems.

Concordia is far from the only company employing this tactic, which became more common after Valeant Pharmaceuticals ($VRX) and Bill Ackman teamed up on a hostile bid for Allergan last year. Mylan ($MYL) tacked on a no-activist clause in its July 2014 agreement to buy Abbott Laboratories' ($ABT) generics business for 110 million shares, Bloomberg points out. And in May, Endo International ($ENDP) tucked no-go activist provisions into its $8.1 billion cash, stock and debt deal to buy Par Pharmaceutical Holdings from private equity firm TPG Capital.

Israeli pharma Teva ($TEVA) has also hopped on the blacklisting bandwagon, banning resales to activists as part of its $41 million deal in July to buy Allergan's generics business.

Still, Concordia is the only company out of the four that named its own list of activists that can't buy its shares. The drugmaker's agreement with Cinven also lays out a "White List" of investors that Cinven is allowed to sell to, mostly public pension and sovereign wealth funds.

The catch is, some activists don't even know that they're being blacklisted. Bans haven't registered yet on managers' radar, even though some activist execs are saying that shareholders will end up paying for the move in the end, Bloomberg reports. "I've never heard of such a thing," Stephen Griggs, CEO of Toronto-based activist firm Smoothwater Capital, told the news outlet. "A restriction on who can buy the stock really just smacks of retrenchment by the management team and the board."

- read the Bloomberg story

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