Pershing Square Capital Management’s biggest-ever investment is going to take its time considering the $46 billion offer favored by the hedge fund, and that’s fine with founder William Ackman.
Allergan Inc., which makes wrinkle-fighter Botox, said yesterday that it would “carefully review and consider” the proposed buyout by Valeant Pharmaceuticals International and Pershing Square, which this week announced a $4 billion investment in Allergan. The company also adopted a poison pill provision designed to keep Pershing Square’s position in the company at its current 9.7%.
Allergan said that the move was not “intended to prevent an acquisition of the company,” but merely to “provide the board with adequate time to fully assess any proposal”—a sentiment that Ackman said he understands.
“If I were a director on this board, I would not immediately accept Valeant’s proposal,” he told CNBC today. “They’ve hired Goldman Sachs and, I think, BofA. Those banks are going to reach out the other big pharma companies and potential buyers of the business.”
But Ackman warned that he would work to ensure the board does “the right thing for shareholders.”
“We have all kinds of ways of making that happen,” he told an investor conference yesterday. “We will do that here, we are committed to doing that here and we have an enormous financial and reputational” investment in the fight.
Ackman warned that if the Valeant offer falls through, the company’s stock will plummet and the board will face a raft of investor lawsuits. The activist praised Valeant as a company, and said that—though he was prevented from doing so due to his partnership with the company in the Allergan campaign—he would buy Valeant stock if the Allergan deal fell through.
Ackman also said that his arrangement with Valeant is legal and does not amount to front-running. He told CNBC that his position had been approved by Robert Khuzami, the Securities and Exchange Commission’s former director of enforcement.
“The way the rules work is you’re actually permitted to trade on inside information… as long as you didn’t receive the information from someone who breached fiduciary duty or duty of confidentiality,” he said. “Valeant basically came to us and said, ‘Look, if you can help us buy Allergan we can work with you.’ We said, ‘great,’ and we formed a partnership.”
“The partnership has various terms,” he added. “It gives us the right and permission from the company to go buy a stake in Allergan.”
The joint campaign is already paying off for Ackman: Pershing Square paid about $3.22 billion for its 25.4 million Allergan shares. The stock jumped 15% following Valeant’s offer yesterday, giving Pershing Square a paper gain of nearly $1 billion.