Judge says not so fast to Valeant and Pershing's $290M lawsuit settlement

Bill Ackman
Pershing Square hedge funder Bill Ackman had teamed up with Valeant to buy Allergan, but the deal failed, and two class action lawsuits ensued. (Business Insider/CC4.0)

Valeant and its putative Allergan buyout partner Pershing Square may have agreed to pay investors $290 million to settle their long-standing court fight, but the judge in that case isn't sure the deal is fair—and he's hauling them into court to defend it.

Judge David O. Carter didn't even wait for a formal filing for his approval to issue his order. After the parties informally notified him about their settlement, Carter demanded they show up in court Jan. 16 to explain the deal.

"The Court has substantial questions regarding whether the settlement amount is reasonable and fair," Carter wrote in a minute order filed Tuesday, "and is interested in hearing the parties’ preliminary positions on this topic at the hearing, prior to any formal filing for preliminary approval of the full settlement and all of its terms."

RELATED: Valeant, Ackman will split the bills for years-long Allergan shareholder suit 

The order comes less than a week after Valeant and Pershing Square, the hedge fund controlled by investor Bill Ackman, said they had come to an agreement to wrap up two class action lawsuits filed after Valeant failed to score a deal for Allergan back in 2014. Pershing Square had bought a 9.7% stake in Allergan and teamed up with Valeant to help win shareholder support for the hostile deal, but Actavis swooped in to buy Allergan—and take on its name—instead.

In their lawsuits, the investors claimed Pershing's alliance with Valeant amounted to insider trading. The fund's stake in Allergan shot up in value by $1 billion as soon as the buyout bid was announced, the investors claimed.

RELATED: Insider trading case against Ackman, Valeant approaches trial: report 

As they worked to fight off the investor claims, Valeant and Pershing had been squabbling among themselves about splitting the settlement costs. Valeant had pledged to pay 60%, but Pershing agreed to shoulder a larger share in return for control of the settlement talks. Under the deal, Pershing Square would pay two-thirds of the amount, or $193.75 million, and Valeant would pay $96.25 million.

“We continue to believe the case had absolutely no merit,” Pershing Square CEO Bill Ackman said in a statement announcing the deal. “We decided, however, that it was in the best interest of our investors to settle the case now instead of continuing to spend substantial time and resources pursuing the litigation.”

The lawsuit had been scheduled to go to trial this month. Valeant and Pershing failed a last-ditch attempt to get the allegations tossed out in mid-December.