Ackman ditches referendum and launches
in Washington | Published
June 2, 2014 at 3:39 PM
Facing mounting concerns from institutional investors,
billionaire activist Bill Ackman on Monday ditched an unorthodox
effort to hold a referendum of Allergan Inc.'s shareholders and
replaced it with a proxy contest to take control of the company's
Ackman, who runs Pershing Square Capital Management LP,
has been pressing to have Allergan sell itself to Canada's Valeant
Pharmaceuticals International Inc. The new effort comes after Valeant
for the second time increased its unsolicited offer to buy Allergan.
The revised offer, which was made Friday, is for $54 billion. Pershing
set up a joint venture with Valeant and owns most of a 9.7% stake in
On Monday, Pershing filed a preliminary proxy statement
seeking to hold a special meeting that would remove six members of
Allergan's nine-person board and replace them with six of his own as
part of a consent solicitation contest.
The move replaces an unorthodox referendum approach
Ackman had been seeking in recent weeks to have investors vote at a
meeting set up outside of Allergan's bylaws on a nonbinding proposal
that would urge Allergan's board to engage in "good faith"
negotiations with Valeant. The referendum could have given Ackman a
sense of shareholder sentiment -- and support for striking a
Valeant-Allergan deal -- quickly because the vote could have taken
place as soon as this month.
However, Ackman canceled plans for the referendum after
a number of institutional investors told him last week that they were
worried the unorthodox approach could trigger Allergan's recently
installed 10% poison pill if they voted to support the nonbinding
proposal, according to people familiar with the insurgent. A number of
hedge funds and other shareholders told Pershing that they should
instead work within Allergan's bylaws and hold a special shareholder
meeting that way instead, these people said.
"Lawyers for some institutional investors have said
that voting for the [referendum] is too risky because it could trigger
the poison pill," said a person close to Pershing. "There is doubt
about whether the pill would be triggered or not. The risk is too
great for some institutional investors."
Ackman had considered employing the traditional bylaw
approach prior to launching the referendum effort but was hesitant
because the drug-maker's corporate rules are set up in such a way that
gives Allergan the ability to delay a vote significantly. Ackman's new
meeting and proxy contest -- working within the bylaws -- will likely
not take place until November, a delay of roughly six months over when
a his referendum could have taken place.
Also, to call a special shareholder meeting at Allergan
within the company's bylaws would require support of 25% of the
outstanding shares so Ackman would need the backing of an additional
15.3% to have one take place.
Pershing could put pressure on Allergan's independent
directors to support the deal if he can cobble together a substantial
vote of shareholders to support his effort to call a special
shareholder meeting, significantly beyond the minimum he needs to
obtain for the meeting to take place. Pershing expects its next set of
proxy materials for the contest will be released between June 16 and
June 26 and that it expects to deliver to the company the consent of
enough shareholders for the special shareholder meeting to go forward
between June 30 and July 24, according to people familiar with the
activist. It is unclear how long the Securities and Exchange
Commission will take to review their materials so the exact timing of
the delivery of consents is uncertain.
One person familiar with the situation said that if
Ackman receives only the bare minimum to call a meeting it would send
a strong message: "Allergan can tell Ackman to go away."
Gary Lutin, chairman of the Shareholder Forum in New
York, said that Ackman could succeed at sending a message to
Allergan's board simply by obtaining the backing of a large number of
investors to have a special shareholder meeting. "If he can get a
majority of investors supporting an official meeting, that's the same
message as a majority of investors supporting his unofficial
referendum," he said.
One other issue with the referendum approach was
whether the two super-influential proxy advisory firms Institutional
Shareholder Services Inc. and Glass, Lewis & Co. LLC would have
rendered recommendations on the referendum at all because of the
unofficial nature of the approach and the fact that institutional
investors don't have any duty to vote their shares for or against it.
However, people familiar with Ackman said they believed
that the proxy advisory firms would have issued opinions and that one
of the reasons Pershing had originally sought to hold a referendum was
because it would have given the advisory firms an early opportunity to
say what they think about the unsolicited offer. Recommendations in
favor of Ackman would have put additional pressure on Allergan to
engage with Valeant.
In addition, most observers agreed that the SEC would
have approved the referendum approach but wouldn't have given
investors any certainty about whether they would trigger Allergan's
pill by voting for Ackman's nonbinding proposal. In addition,
institutions raised questions about whether participating in the
petition would also have required them to make an activist schedule
13d disclosure filing with the SEC. With a traditional special
shareholder meeting, institutional investors don't have to worry about
forming a group with Ackman and triggering the poison pill.
Had Ackman called for a special meeting to discuss
shareholder views without having a vote on a proposal he likely would
have had less opposition from institutions. Lutin added that the
concept of holding a meeting or a vote to determine shareholder views
is useful to investors as well as company managers who listen.
"Everybody, including the SEC, likes the idea of investors being able
to exchange views, as long as it's done fairly. And institutional
investors will definitely show up if they don't have to worry about
being subpoenaed by the company for it," Lutin said.
©Copyright 2014, The Deal.