Pershing Capital Files Suit Against Allergan -- Update

By Anna Prior 

William Ackman's Pershing Square Capital Management L.P. on Friday said an affiliate has filed a lawsuit seeking to confirm that the recent push for a special meeting of Allergan Inc. shareholders won't trigger its recently adopted poison pill.

A representative for Allergan didn't immediately respond to requests for comment.

The lawsuit, filed in the Delaware Court of Chancery, marks the latest move in a takeover attempt by Valeant Pharmaceuticals Inc. (VRX) and partner Pershing, which is the largest Allergan shareholder with a 9.7% stake in the company.

The Botox maker has rebuffed the advances, and earlier this week rejected the latest takeover bid from Valeant and Pershing, adding that the offer substantially undervalues the company.

Valeant boosted its takeover bid for Allergan late last month, offering about $52.7 billion in cash and stock, partly thanks to Mr. Ackman's agreement to take a price cut on his own stake.

The lawsuit, unveiled Friday, comes after a request by Pershing earlier this month to Allergan that sought confirmation that the company wouldn't use its poison pill to impede the calling of a special meeting, Pershing said on Friday. Pershing had called for a special meeting of Allergan shareholders in an effort to unseat six members of the board.

Allergan's poison pill limits Pershing Square's stake to less than 10% and could restrict talks between investors. The referendum was seen as a way to sidestep the pill in terms of investor discussions, but Mr. Ackman said in the end he couldn't tell institutional investors he was sure the pill wouldn't be tripped.

A poison pill, also known as a shareholder rights plan, is designed to dilute the value of the stock by flooding the market with additional shares, making it expensive for an investor to acquire a controlling stake.

"We regret that we were forced to file this lawsuit," said Mr. Ackman in a statement. "Allergan's failure to confirm that its poison pill does not apply to the actions taken in furtherance of calling a special meeting is a blatant attempt to frustrate shareholders' ability to express their vies and exercise their rights."

Since Valeant's bid for Allergan was first disclosed in April, the companies have been engaged in a public war of words, and Allergan adopted a poison-pill defense saying if any unapproved investor acquires 10% or more of the company's stock, other stockholders will have the right to buy discounted shares.

Valeant criticized Allergan's management for spending too freely, particularly on research and development. Valeant, which has promised that it would cut the combined company's R&D spending by 69%, spends little on science, instead focusing on buying established drugs and treatments and welling them through its international network.

Allergan, meanwhile, has said Valeant's cost-cutting would threaten future sales growth and R&D, putting the company at risk. Allergan also questioned the stability of Valeant's business model.

Write to Anna Prior at [e-mail]

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