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Pershing Square Eyes Nonbinding Vote on Allergan Bid

NEW YORK (The Deal) -- Bill Ackman's activist hedge fund Pershing Square Capital Management expects Allergan (AGN - Get Report) shareholders will have an opportunity as soon as next month to consider its proposal to have the Irvine, Calif.-based company engage in discussions over Canada's Valeant Pharmaceuticals International (VRX - Get Report) $45 billion hostile acquisition offer, according to a person familiar with the situation.

That, in turn would bring more pressure to bear on Allergan -- best known as the maker of Botox -- which so far has declined Valeant's cash and stock offer, saying it undervalued the company.

While Allergan's by-laws require that 25% of its shareholders back a request for a special meeting (they also give the company 60 days to call a meeting if a sufficient number of shareholders agree), Pershing Square's approach can bypass that prerequisite, a source said.

That's because the dissident is using a "shareholder referendum," process to see if it can drum up support for Valeant's bid.

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On Tuesday, Pershing Square, which holds most of a 9.7% Allergan stake, said it was seeking to have Allergan's shareholders vote on a nonbinding proposal to have the company's board "engage in good faith discussions" with Valeant.

While the proposal would be nonbinding it could send a powerful message that Allergan shareholders are seeking a sale of the company. Pershing Square's proposal adds that it would in no way "preclude" the company from choosing to engage in discussions with other "parties potential offering higher value." Observers argue that the prospect of the meeting -- and its possible quick timing -- could be what it takes to drive Allergan to begin formal discussions with Valeant.

The company seemed to acknowledge that Pershing Square is applying an unorthodox approach, saying in a statement that it is an obvious "self-serving exercise by Pershing Square to further Valeant's attempt to acquire Allergan" and that rather than using the mechanism approved by the Allergan shareholders to call a special meeting, they "are dictating their own process."

An Allergan spokesman declined to comment beyond the statement.

Pershing first highlighted on Monday that it could launch a proxy contest or seek to hold a special shareholder meeting to have investors consider a nonbinding deal-related proposal. In a Securities and Exchange Commission filing, Pershing noted that it wanted all Allergan shareholder material to be made available so that a group it has formed could communicate with other investors about specific policies and affairs, including "the solicitation of proxies or written consents in connection with any election of ... nominees to the board of directors" or any proposals the fund's group would have come up for consideration at "any annual or special meeting or in any action by written consent."

Pershing set up a joint venture with Valeant, where the dissident investor owns 98% of its 9.7% Allergan stake, while Valeant owns the remaining 2%.

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