Allergan Rejects Pershing Square-Backed Bid

May 12 2014 | 4:27pm ET

Pershing Square Capital Management’s biggest-ever investment has earned the hedge fund a tidy paper profit—but isn’t working out exactly as founder William Ackman planned.

Allergan Inc., which Pershing Square owns nearly 10% of, today formally rejected the hostile $46 billion offer made by Valeant Pharmaceuticals International with Ackman’s backing. The company, which makes Botox, said that Allergan would be better off as an independent company.

Therefore, Valeant’s offer “substantially undervalues Allergan, creates significant risks and uncertainties for the stockholders of Allergan, and is not in the best interests of the company and its stockholders,” Allergan said.

Pershing Square quickly made clear that Allergan’s decision would not be the end of the story, demanding that the company turn over a list of shareholders so it can “communicate with fellow stockholders of the company.”

For its part, Valeant said it was “disappointed that Allergan has rejected our value-creating offer without engaging in any substantive discussions with Valeant or Allergan’s largest stockholder, Pershing Square, and we remain committed to pursuing this transaction.”

Allergan shares have soared since Pershing Square and Valeant announced their partnership, and the hedge fund’s investment in the company had returned 38% as of Friday, according to The Wall Street Journal. The company’s rejection of Valeant’s offer dinged its shares slightly, but Pershing Square remains way up on its bet.

Allergan had previously rejected Valeant’s advances, and the company’s latest approach sent it scurrying for alternatives. But both Johnson & Johnson and Sanofi declined to pursue a bid, Bloomberg News reports.

Allergan CEO David Pyott insisted that Allergan is “well-positioned to deliver compelling value to our stockholders” on its own, adding that “we have a lot of strategic options of our own.” Allergan also reportedly contacted GlaxoSmithKline and Novartis after the Valeant offer, and also sought acquisition targets of its own.

Pyott also criticized Valeant, calling their strategy of growth through acquisitions “absolutely unsustainable. This company has to keep acquiring, otherwise they will peter out. It’s a roll-up strategy.” And he pledged to do right by Ackman, one way or other.

“We’re going to work to create more shareholder value for him,” he said.

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