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Allergan lawsuit against Valeant, Pershing Square cites securities violations
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On Aug. 1, Allergan filed a lawsuit in the United States District Court for the Central District of California against Valeant Pharmaceuticals, Pershing Square Capital Management and its principal, William A. Ackman, citing violations to federal securities laws prohibiting insider trading, engagement in fraudulent practices and failure to disclose legally required information.
A hearing on the case in a federal court in California was scheduled for Aug. 20. Neither Allergan nor Valeant had reported results of the hearing as of OSN press deadline, although an Allergan press release issued Aug. 27 stated that Allergan has requested “an expedited schedule for discovery and a motion for a preliminary injunction.” The release further announced a special meeting of stockholders on Dec. 18; the injunction order would “prevent Valeant, Pershing Square, and Mr. Ackman from voting their shares in any special meeting.”
The complaint alleged that between February 2014 and April 2014, Pershing Square purchased Allergan stock and securities valued at more than $3.2 billion from unknowing Allergan stockholders, with full understanding of Valeant’s non-public takeover intentions.
Allergan requested a declaration from the court that Pershing Square and Valeant violated insider trading and disclosure laws, in addition to an order repealing Pershing Square’s purchase of the Allergan shares it acquired, according to an Allergan news release. Allergan also reserved the right to seek additional remedies against all parties deemed appropriate.
“The Allergan board of directors is strongly committed to protecting the stockholder franchise and believes it is important that the rights of the company’s stockholders not be infringed by the actions of one hedge fund that significantly profited (to the detriment of other stockholders and the market) by trading in Allergan securities while in possession of material non-public information regarding Allergan,” the release said.
In a Valeant news release issued Aug. 1, Ackman called the suit a “shameless attempt by Allergan to delay the shareholders’ fundamental right to call a special meeting and vote their shares.”
“We are disappointed that Allergan continues to stand in the way of its shareholders’ right to voice their views on a transaction with Valeant,” J. Michael Pearson, chairman and CEO of Valeant, said in the release.
In June, Valeant and Pershing Square filed preliminary documents with the U.S. Securities and Exchange Commission to call a special meeting of Allergan stockholders. Allergan stockholders would have been asked to remove six incumbent Allergan directors and request the appointment of new directors, according to an Allergan news release.
In August, Institutional Shareholder Services and Glass Lewis supported Pershing Square’s efforts to call the special meeting, according to a Valeant news release.
Valeant reports revenue increase
On July 21, Valeant reported total revenue of $2 billion for the second quarter of 2014, up 86% from the second quarter of 2013. The increase was partly attributed to product launches, the sale of cosmetic product lines and growth at Bausch + Lomb, which Valeant acquired in August 2013.
Valeant’s net income totaled $126 million, or $0.37 per diluted share. Based on cash earnings per share, Valeant’s adjusted income increased by 43% from the previous year at $651 million, or $1.91 per diluted share, according to a news release.
The second quarter revenue gain was driven by strong growth in nearly all divisions, a rebound in emerging European markets, robust sales in Asia, strong performance in the U.S. contact lens business with organic growth of 37% and 12% organic growth in U.S. Bausch + Lomb consumer businesses.
Valeant launched 17 new products in the U.S. and sold facial injectable assets to Galderma for about $1.4 billion. Proceeds will be used to fund Allergan and/or initiate additional business development opportunities, the release said.
According to a news release issued on Aug. 5, Allergan’s financial advisers and forensic accountants found “numerous inconsistencies and omissions” in Valeant’s second quarter earnings report.
Valeant merger proposals
On April 22, Valeant proposed acquiring all outstanding Allergan shares for a combination of 0.83 shares of Valeant common stock and $48.30 in cash per share. Allergan’s board of directors rejected the proposal on May 12, concluding that the proposal “substantially undervalues Allergan and does not reflect the value of the company’s leading market positions, sales and marketing foundation, industry-leading research and development efforts, as well as future revenue and earnings growth,” an Allergan news release said.
Valeant officials stated that Allergan rejected the proposal without discussing it with Valeant.
On May 27, Allergan filed an investor presentation with the SEC outlining concerns about Valeant’s growth, accounting practices, the performance of Valeant acquisitions Bausch + Lomb and Medicis, and other issues. Allergan filed another investor presentation on July 14 reiterating those concerns.
On May 28, Valeant issued a revised merger proposal under which Valeant would acquire all outstanding Allergan shares for a combination of 0.83 Valeant common shares and $58.30 in cash per share of Allergan common stock, plus a contingent value right related to sales of DARPin of up to $25 per share in value.
In a second revised proposal issued on May 30, Valeant offered to acquire Allergan stock in exchange for $72 in cash, 0.83 shares of Valeant common stock and the contingent value right related to sales of DARPin.
Allergan’s board of directors rejected Valeant’s second revised merger proposal.
On June 18, Valeant presented an exchange offer to Allergan stockholders. Under the terms of the offer, Allergan stockholders would be able to exchange each Allergan share for $72 in cash and 0.83 Valeant shares, or an amount of cash or a number of Valeant common shares subject to proration, according to a Valeant news release.
In July, Valeant filed an official complaint with the Autorité des marchés financiers, a financial agency regulation in Quebec, citing Allergan’s “apparent attempts to mislead investors and to negatively influence the market price of Valeant’s common shares by continuing to make false and misleading statements regarding Valeant’s business despite Valeant’s public statements correcting this misinformation,” according to a Valeant news release.
On Aug. 15, Valeant postponed the expiration of its exchange offer to Dec. 31, from the originally scheduled expiration date of Aug. 15. – by Samantha Costa, Matt Hasson and Patricia Nale, ELS