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TheStreet Open House

Allergan Calls Valeant Unsustainable, Doubts Inversion

Activists Re-Writing Rules

Pershing Square Capital Management may be re-writing the rules of activist investing after teaming up with Valeant on a takeover proposal for Allergan.

The effort is the first that counts an activist hedge fund investor as a crucial piece and it raises the prospect of similar marriages between activist investors and deal-seeking corporations looking to press an unsolicited merger.

On April 21, Pershing Square disclosed it had acquired over $4 billion worth of Allergan's stock, or approximately 9.7% of the company's outstanding shares, as part of an unsolicited effort to merge the two pharma industry giants.

And then on April 22, Valeant released details of its bid, including estimates of $2.7 billion in annual operating synergies in the event of a merger and the prospect of a 20-cent dividend.

While Allergan is best known for its Botox treatments, Valeant Pharmaceuticals has emerged as one of the fastest growing generic drug manufacturers in the world.

Valeant's initial offer contained a cash component of $15.5 billion with the rest of the transaction financed with stock. Such a merger would be among the largest pharmaceutical deals and values Allergan at over $45 billion.

Barclays and Royal Bank of Canada agreed to financing commitments to cover the cash portion of a deal.

"The combination of Valeant and Allergan represents the most strategic and value-creating transaction I have ever analyzed," Bill Ackman, head of Pershing Square, said in a statement in April. Ackman said Pershing would elect to take all-stock in a transaction as part of a long-term investment.

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