Ackman's Pershing Square Files Lawsuit Against Allergan Over Poison Pill

(RTTNews) - William Ackman's hedge fund Pershing Square Capital Management, L.P. said Friday it has filed a lawsuit, seeking a declaratory judgment to confirm that its plan to call a special meeting of Allergan Inc.'s (AGN) shareholders will not trigger the Botox maker's recently adopted poison pill.

Pershing Square, the largest shareholder in Allergan with a 9.7 percent stake, has called for a special meeting of Allergan shareholders as it seeks to remove six members from the current board of the company.

Ackman is seeking support from other Allergan shareholders to oust six directors from that company's board and smoothen the process to consummate Pershing Square's joint takeover bid with Canadian drug maker Valeant Pharmaceuticals Inc. (VRX, VRX.TO) for Allergan.

Pershing Square said the lawsuit followed its request on June 6, 2014 to Allergan, seeking confirmation that Allergan would not use its poison pill to frustrate its own bylaws and impede the calling of a special meeting of Allergan shareholders. The hedge fund added that a response from Allergan's counsel on June 11, 2014 failed to provide the confirmation requested.

The New York-based hedge fund filed the lawsuit in the Delaware Court of Chancery.

Ackman said, "We regret that we were forced to file this lawsuit. Allergan's failure to confirm that its poison pill does not apply to the actions taken in furtherance of calling a special meeting is a blatant attempt to frustrate shareholders' ability to express their views and exercise their rights."

Allergan said Tuesday that its board of directors unanimously rejected a sweetened $53 billion takeover bid from Valeant Pharmaceuticals and Pershing Square. According to Allergan, the revised unsolicited proposal substantially undervalued the company as well as created significant risks and uncertainties for its shareholders.

The sweetened offer was possible mainly after Ackman agreed to take a price cut on his own Allergan shares, thus helping Valeant to come up with a higher bid.

A poison pill, also known as a stockholder rights plan, is a strategy used by a target company to discourage hostile takeovers and attempts to make its stock less attractive to the acquirer. Allergan's poison pill limits Pershing Square's stake in that company to less than 10 percent.

Pershing Square said that Allergan's defensive reaction to the takeover offer by Valeant has raised speculation that Allergan might try to assert that a shareholder's compliance with the unprecedented procedures in the company's bylaws somehow triggers the poison pill.

The hedge fund added that using a poison pill to silence shareholders or prevent them from exercising their voting rights was unlawful.

AGN is currently trading at $161.72, down $0.32 or 0.20 percent on a volume of 667,870 shares.