Activist Bill Ackman's Pershing Square Capital Management LP and a smaller fund helmed by a former protégé, launched a campaign at Zoetis Inc. (ZTS) according to securities filings Wednesday, in an effort that could eventually push the animal-health company to sell itself.
Pershing Square said in its filing it had acquired an 8.5% stake in Zoetis, in an allocation that includes some common shares, a large number of put options and so-called forwards, which are commitments to buy shares at a later date at a fixed price, and other derivatives investments including cash-settled total return swaps.
The equity part of that investment, roughly 41.8 million shares, is valued at roughly $1.7 billion at Zoetis' 60-day moving average and was accumulated during the same period that Pershing Square has been in court with Allergan Inc. (AGN) as the Botox maker has battled a takeover bid from Valeant Pharmaceuticals International Inc. (VRX) , backed by Ackman's fund.
Though the Wednesday filing contained the initial boilerplate language common to activist's 13D filings, Ackman usually follows those up with detailed letters making demands and even a heated proxy fight if the target doesn't accede to the hedge fund's pressure.
The hedge fund manager will likely be able to gain some support among Zoetis' institutional investors by pointing to the company's poor showing in its bylaws when it comes to shareholder rights. According to a report by Institutional Shareholder Services Inc. obtained by The Deal, Zoetis received a 9 out of 10 rating for its shareholder rights, with 10 being the worst possible assessment. Overall, ISS ranks Zoetis as a 6.