Pershing's Ackman Seeks to Rally Allergan Investors

NEW YORK (TheStreet) - Bill Ackman of Pershing Square Capital Management has requested that Allergan (AGN) give the hedge fund a record of its shareholders so that it can press a takeover offer of the company it has orchestrated with Valeant Pharmaceuticals (VRX).

>> Read More: Allergan calls Valeant Unsustainable, Rejects $45B Offer

In filing with the Securities and Exchange Commission, Pershing demanded Allergan send over information about its shareholder base so the hedge fund could communicate with those investors about Valeant's takeover offer, which valued Allergan at about $45 billion in cash and stock when announced in late-April.

The request indicates Pershing Square and Valeant will continue to press their unsolicited offer for Allegan and came after the target rejected the cash and stock offer. It also comes as little surprise. Valeant Pharmaceuticals said on a conference call earlier in May it would seek a referendum among Allergan shareholders that might prompt the company to enter merger negotiations.

Allergan said on Monday Valeant's offer was undervalued and highlighted its belief the company's business model was unsound and presented a risk to shareholders who would be receiving the majority of prospective merger proceeds in stock.

"[Your] Proposal includes a large stock component, which we believe is a risk for Allergan stockholders due to the uncertainty surrounding Valeant's long term growth prospects and business model. Valeant's strategy runs counter to Allergan's customer focused approach," Allergan said on Monday.

"In particular, we question how Valeant would achieve the level of cost cuts it is proposing without harming the long term viability and growth trajectory of our business. For those reasons and others, we do not believe that the Valeant business model is sustainable," the company concluded.

On a Monday conference call, Allergan CEO David Pyott elaborated on the company's views of Valeant's unsustainable business model. He said Valeant, one of the most prolific acquirers in the pharmaceutical industry, is struggling to grow its business organically. Pyott also questioned the results of Valeant's R&D efforts and said it it is all but impossible to slash research budgets while growing organic revenue.

To underscore Allergan's prospects without Valeant, CEO Pyott gave investors and analysts an updated guidance for the company in 2014 and beyond.

Allergan also said on Monday it expects to increase earnings per share by 20%-to-25% generate double digit revenue growth in 2015. The company also provided guidance of double digit sales growth over the next five-years, in addition to a compound annual EPS growth rate of 20%.

Nonetheless, Allergan said it would review a revised proposal from Valeant, declining to comment on whether a potentially acceptable takeover proposal would include stock in addition to cash.

That lack of commentary indicates that in spite of a strongly-worded response from Allergan to Valeant's bid, there remains the prospect that a merger might still be negotiated.

"Given our view that this management team will always act in the interest of its shareholders, if feedback suggests that a merger with Valeant is the best path forward, then we believe that management will be open to negotiation." Sterne Agee analysts said in a Monday note.

"Most investors we have spoken to agree that there are business risks to Valeant's acquisition of Allergan and that, over the long run, Allergan is likely more valuable as an independent company," the analysts concluded.

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.

Allergan shares fall less than 1% to $159.72, recovering some losses in Monday trading. Valeant shares also fell less than 1% to $130.16 in Monday. Shares in both companies have gained sharply since the deal was first announced, indicating it may be important for Allergan to prove its standalone prospects outweigh the benefits of a merger with Valeant.

Pershing Square Capital Management declined to comment.

>> Read More:

Pershing Square and Valeant's Allergan Deal Is A Watershed

Wachtell Sees a Threat In Allergan's Bid

-- Written by Antoine Gara in New York.

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