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business litigation may stall pharmaceutical takeover

The pharmaceutical company that makes Botox filed a complaint in a California federal court on Aug. 1 against another pharmaceutical company. Allergan, Inc., the filer of the complaint, alleges that Valeant Pharmaceuticals colluded with a financial management firm to further profit from a planned takeover. The allegations are very serious, both because business litigation may put a halt to the takeover and because insider trading is illegal.

According to regulatory documents, Pershing Square Capital Management, a firm owned by Bill Ackman, purchased 25.4 million shares in Allergan earlier this year. The purchase price of the shares at that time was $3.22 billion. Following an announcement that Valeant was making a takeover bid, Allergen stock values rose by 15 percent. According to reports, that value increase resulted in a $1 billion gain for Ackman in a single week.

The allegations of collusion come at a time when Ackman is pushing for a special shareholder meeting at Allergan. The purpose of the meeting would be to vote on the takeover, but experts say the lawsuit may push that meeting off for some time. The lawsuit, which could last through 2015, may keep investors or shareholders from making a decision. It also lessens the likelihood that the takeover will occur.

In the meantime, a proxy firm is reviewing the matter and is expected to offer a recommendation to Allergan shareholders about whether a meeting should be held. Among other things, the firm is reviewing Allergan bylaws. Cases involving corporate shareholders and other complex business matters require a careful handling of legal, financial and regulatory concerns. The last thing any business manager, owner or shareholder wants is to fall afoul of compliance requirements during a big business deal.

Source: Bloomberg, "Allergan Sues Valeant Claiming Insider Scheme With Ackman" Christie Smythe and Caroline Chen, Aug. 01, 2014

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