William Ackman, founder and CEO of hedge fund Pershing Square Capital Management, speaks to an audience about Herbalife in New York on July 22, 2014.EDUARDO MUNOZ/Reuters
Activist investor Bill Ackman is threatening to sue Allergan Inc. if it proceeds with a merger deal with Salix Pharmaceuticals Ltd. without first putting such a proposed transaction to a vote.
Mr. Ackman, whose Pershing Square Capital Management LP is partnered with Laval, Que.-based Valeant Pharmaceuticals International Inc. in a $53-billion (U.S.) hostile bid for Allergan, said a transaction with Salix without shareholder approval would "directly contradict" pledges by Allergan's board to allow its shareholders to vote on the Valeant offer.
"By undertaking an acquisition without a shareholder vote, with the purpose and desired effect of frustrating a Valeant transaction, you are breaching your commitment that shareholders would have a vote on the value proposition offered by Valeant," Mr. Ackman said.
"We do not believe you can lawfully undertake such a transaction, particularly given your failure to engage with Valeant.
"If you take such action we will immediately bring litigation against you (and any counterparty that aids and abets you) for breach of fiduciary duty."
The letter, a copy of which was obtained by The Globe and Mail, was sent Tuesday, a day after the Wall Street Journal reported that Allergan is in advanced discussions to buy Raleigh, N.C.-based Salix in a deal valued at about $10-billion.
Allergan said on Tuesday that it does not comment on "rumours or speculation" but noted that "the Allergan board continues to conclude that Laval, Que.-based Valeant's bid for Allergan is grossly inadequate and substantially undervalues Allergan.
"The Allergan board is well aware of its fiduciary obligations and, in that context, is focused on enhancing value for all stockholders, unlike Mr. Ackman who is financially incentivized to deliver Allergan to Valeant at the lowest possible price."
It was first reported in July that Allergan and Salix were in talks and that Allergan had rejected a takeover bid from Actavis PLC that was not much higher than the Valeant offer.
An Allergan-Salix transaction could complicate Valeant's bid for Allergan.
Salix is a specialist pharmaceutical company offering treatments for gastrointestinal disorders. It is currently working out the details of its own merger with a subsidiary of Italian drug maker Cosmo Pharmaceuticals SpA.
In a separate development on Monday, a U.S. District judge ordered Allergan to hand over to lawyers for Valeant and Pershing all of the records of recent board meetings and other strategic documents; Allergan had argued that such an action would make it vulnerable by exposing its defence tactics against the hostile attempt.
Under terms of an agreement reached last week between Valeant, Pershing Square and Allergan, the latter will hold a special meeting on Dec. 18 at which Valeant and principal backer Pershing Square will seek to remove a majority of Allergan's board.
Pershing Square and Valeant took their fight to court last month to force Allergan to hold the special meeting.
The takeover partners alleged that California-based Allergan was stalling so that it could work out an alternative deal.
Pershing Square, which is Allergan's largest shareholder with a 9.7-per-cent stake, and Valeant launched their hostile offer in April.
Allergan has called into question Valeant's business model, which it says is overly reliant on growth by acquisition. Allergan has also unveiled its own plan to continue as a stand-alone business that includes making an acquisition and slashing costs.
In a separate legal action in California, Allergan is seeking a preliminary injunction against Valeant and Pershing Square for alleged insider trading ahead of the takeover attempt.
Monday's court order to hand over board minutes and other documents to Valeant and Pershing is part of that legal action by Allergan.
Bertrand Marotte