DealLawyers.com Blog

Here’s the latest from “The Activist Investor”

Earlier we outlined how Valeant and Pershing Square (PS) planned to convene an unusual ‘meeting’ of Allergan shareholders. They sought to collect votes on a non-binding resolution urging Allergan leadership to negotiate with Valeant and PS on their pending bid to acquire Allergan. In the latest twist in this unique story, Valeant and PS withdrew its proposal for the ‘meeting’. The New York Times reported that Allergan shareholders view the ‘meeting’ as a “distraction” and worry that voting for the proposal would trigger Allergan’s poison pill.

Instead, PS now proposes an official special shareholder meeting. The agenda includes dumping six Allergan directors, and approving six new ones nominated by PS and Valeant. And, it features the exact same non-binding resolution that Valeant and PS originally proposed for the ‘meeting’, urging Allergan to negotiate a deal with Valeant and PS. Also, Valeant and PS boosted their offer for Allergan within days of proferring their original one.

The New York Times and Wall Street Journal think that Valeant and PS acted erratically. From the Times:”Yet in the last week, Valeant and [PS] have turned an already unusual deal into a one of the most confounding takeover attempts in recent memory. Their tactics have often departed from the established playbook, and at times have appeared counterproductive. And after they offered a succession of revised proposals, changed tactics and made public presentations, the fate of Allergan remained no more certain than it was in April, when the process began.” The Journal merely called it “zigging and zagging.”

We rather think Valeant and PS made some shrewd and sensible moves based on candid discussion with other investors. As they disclosed these discussions, it appears they responded to two critical developments:

– Investors signaled what deal structure would win their vote, hence the improved terms in a week’s time.

– Allergan showed zero inclination to respond to a non-binding resolution, even one with significant shareholder support.

It sounds like investors said, “Why bother with the referendum? As long as you respond to our economic needs, we’ll vote for a new BoD, and wait for the protracted special meeting process to work out.” Based only on what PS disclosed, Allergan should come to the table sooner rather than later. Last week, Valeant and PS met with investors representing at least 20% of the outstanding shares, which with their 10% gives them a dominant block. It takes 25% of the outstanding shares to call the special shareholder meeting, which seems very likely to take place.

Seems to us Allergan would almost certainly prefer to negotiate a deal in private, rather than attend a special shareholder meeting in public.