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Bill Ackman’s Pershing Square Capital Management hedge fund and Valeant Pharmaceuticals have teamed up to grab a potential 9.7-per-cent stake in Allergan.

Pawel Dwulit/The Canadian Press

Hedge fund manager Bill Ackman is urging Allergan Inc. to negotiate with its suitor Valeant Pharmaceuticals International Inc. even if it's seeking a different marriage partner.

Mr. Ackman has purchased 9.7 per cent of Allergan shares in support of Valeant's $48-billion (U.S.) bid for the California-based maker of Botox and other skin-care products. He sent a letter Monday to Allergan's lead independent director suggesting that it "should begin discussions with Valeant in the very near future."

While it makes sense for Allergan to look for a white knight, Mr. Ackman said, the company should also start talks with Montreal-based Valeant because its chief executive Michael Pearson has made public statements "suggesting that Valeant may be willing to improve its proposal if Allergan management and its board were to initiate discussions shortly."

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Mr. Ackman noted that the list of global pharmaceutical companies with the financial capacity to buy Allergan is limited.

Analysts have raised a number of potential buyers, including French health-care giant Sanofi SA and American pharmaceutical and packaged goods powerhouse Johnson & Johnson.

In his letter, Mr. Ackman said "it is risky for Allergan to rely on the potential for it to negotiate a transaction with a global pharmaceutical company that is superior to the transaction proposed by Valeant."

He was also critical of another scenario that has been floated – that Allergan buy a foreign company in order to make itself too big for Valeant to purchase, while reducing its tax rate by shifting some of its assets out of the United States.

"We are skeptical that such a 'tax-inversion' would be superior to the Valeant transaction," Mr. Ackman's letter said, mainly because it would lack the "strategic rationale" of a combination with Valeant.

Mr. Ackman said that Valeant's current offer for Allergan, which involves a cash component plus Valeant shares, is worth more than it appears. That's because "Valeant's current stock price reflects a substantial discount to where it will likely trade if the transaction closes."

Overall, he said, "As Allergan's largest shareholder, we are supportive of Allergan making the best possible deal with Valeant or identifying a superior transaction with another company. Given the short list of potential acquirers and Valeant's willingness to negotiate quickly, we believe Allergan can explore its strategic alternatives and determine a course of action within a matter of weeks."

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