Allergan, Valeant Saga: Pershing Square Court FilingVW Staff
Earlier, we reported that Bill Ackman’s Pershing Square was suing Allergan, Inc. (NYSE:AGN) for its rejection of a bid by Valeant Pharmaceuticals Intl Inc (NYSE:VRX) (TSE:VRX) to buy the company. Below is the full court document.
Verified Complaint For Declaratory Relief And Injunctive Relief
Plaintiff PS Fund 1, LLC (“PS Fund 1”), by and through its undersigned counsel, alleges the following for its Verified Complaint against Defendant Allergan, Inc. (NYSE:AGN) (“Allergan” or “Company”):
Nature of the Action
1. This is an action to protect the shareholder franchise. Allergan, Inc. (NYSE:AGN)’s Certificate of Incorporation (“Charter”) explicitly grants Allergan shareholders the right to call a special meeting, and Allergan’s Amended and Restated Bylaws (“Bylaws”) set out the complex and burdensome procedures for exercising that right. But Allergan’s Board of Directors (“Board”) has imperiled that right through its application of a “poison pill,” enacted without shareholder approval, to defend against a merger proposal from Valeant Pharmaceuticals Intl Inc (NYSE:VRX) (TSE:VRX) (“Valeant”). PS Fund 1 seeks to do only what the Charter expressly permits: call a special meeting to solicit shareholder views of Valeant’s proposal by voting on the removal of directors hostile to that proposal. Allergan, however, has refused to confirm that the conduct necessary to call a special meeting under the Charter and Bylaws will not trigger the poison pill and thus massively dilute the stakes in Allergan held by PS Fund 1 and other shareholders who give proxies in response to PS Fund 1’s proxy solicitation. The uncertainty created by Allergan has the effect of disenfranchising Allergan shareholders and stifling stockholder dissent—if PS Fund 1 proceeds with its effort to collect the necessary shareholder support for a special meeting, it must do so at the risk (to PS Fund 1 and other shareholders) that Allergan will later claim that this very same conduct has triggered the pill and diluted its stockholdings. PS Fund 1 therefore seeks a declaratory judgment regarding the application of the pill to the anticipated efforts to request a special meeting under the Charter and Bylaws.
2. Plaintiff PS Fund 1 is the largest stockholder of Allergan, Inc. (NYSE:AGN), owning an aggregate of 28,878,538 shares of common stock (approximately 9.7% of the outstanding shares). On June 2, 2014, Pershing Square Capital Management, L.P. (“Pershing Square”), the investment manager of PS Fund 1, commenced an effort to call a special meeting of Allergan shareholders by filing a preliminary proxy statement on Schedule 14A with the U.S. Securities and Exchange Commission (“SEC”). The fundamental purpose of that meeting is to allow shareholders to vote on the removal of a majority of the Board, which has refused to engage in merger discussions with Valeant, even though Valeant Pharmaceuticals Intl Inc (NYSE:VRX) (TSE:VRX) has offered to acquire Allergan for a combination of cash and stock that reflects a 55% premium to Allergan’s unaffected stock price.
3. The Board has resisted giving serious consideration to a merger offer that many shareholders view favorably. Publicly, it has attacked Valeant and raised materially inaccurate and unsubstantiated criticism of Valeant Pharmaceuticals Intl Inc (NYSE:VRX) (TSE:VRX) (“Valeant”)’s business model, its business practices, and its senior management. Behind the scenes, it has lobbied investors and other interested parties to disregard Valeant’s offer.
4. Most recently, the Board has taken steps to prevent shareholders from expressing their views on the transaction. After enacting a “poison pill” in response to Valeant’s offer—which effectively blocks Valeant Pharmaceuticals Intl Inc (NYSE:VRX) (TSE:VRX) from consummating a transaction without the Board’s approval—the Board is now using the pill to silence shareholder dissent and prevent shareholders from exercising their right to call a special meeting to vote on whether they agree with the Board’s position.
5. Under Article 10 of the Charter, shareholders have the right to call a special meeting upon the written request of record holders of twentyfive percent (25%) of the outstanding shares. The Bylaws set forth numerous requirements that must be satisfied by shareholders to exercise that right. In order to establish the requisite 25% ownership threshold, the Bylaws require that shareholders collectively owning 25% of the shares become direct record owners of the shares and submit written requests to the Company that identify the same underlying purpose for the special meeting, reflect the same matters to be acted upon at the meeting, and certify that the shareholder possesses an intent to hold its shares through the date of the special meeting. By their plain terms, these provisions of the Charter and Bylaws necessitate some measure of coordination amongst shareholders to call a special meeting. In addition, the Bylaws require each shareholder requesting a special meeting to make significant detailed disclosures about certain “interests” (of itself and of various entities that have specified relationships with the stockholder) such as any contracts or agreements with principal competitors of the Company. Finally, the Bylaws include various rules pertaining to the timing of special meeting requests: (a) special meeting requests received 90 days prior to the first anniversary of the preceding annual meeting are “ineffective”; and (b) the Board has the ability to delay a special meeting that is properly called by 120 days. The net effect of these timing rules is that shareholders have a limited window between annual meetings within which to exercise their Charter right to call a special meeting.
6. Under the terms of the “Rights Plan,” enacted by the Board in response to Valeant Pharmaceuticals Intl Inc (NYSE:VRX) (TSE:VRX) (“Valeant”)’s offer, the so-called “poison pill” is triggered if any shareholder becomes the “Beneficial Owner” of ten percent (10%) or more of outstanding Company shares. The term “Beneficial Owner” states that a shareholder is deemed to beneficially own:
any securities … which are Beneficially Owned … by any other Person … with whom such Person … has an agreement, arrangement, or understanding to act together for the purpose of acquiring, holding, voting, or disposing of any securities of the Company (except that a Person shall not be deemed the Beneficial Owner of any security under this Section 1.3.3 if such voting power arises solely from a revocable proxy or consent given to such Person in response to a public proxy or consent solicitation made pursuant to, and in accordance with, Section 14(a) … by means of a solicitation statement filed on Schedule 14A)[.]
7. After reports surfaced that the pill could be used to restrict talks between investors, PS Fund 1 requested Allergan, Inc. (NYSE:AGN)’s position on whether PS Fund 1’s solicitation and receipt of revocable proxies in connection with the special meeting request would trigger the pill. Seeking to capitalize on the uncertainty it created, Allergan failed to provide the answers necessary for shareholders to pursue a request for a special meeting. Allergan indicated that PS Fund 1’s solicitation and receipt of one or more revocable proxies from other Allergan stockholders for the purpose of requesting a special meeting would not in and of itself trigger the pill. But it evaded responding to PS Fund 1’s other questions, including whether discussions about the Bylaw requirement that a requesting stockholder express an intent to hold the shares through the meeting date, or the provision of assistance to fellow shareholders to complete, execute, date, and deliver the Special Meeting Request forms and revocable proxies and consents, would trigger the Rights Plan. Because the Bylaws contain numerous and complex requirements for completing the Special Meeting Request forms, PS Fund 1 anticipates the need to communicate with and provide assistance to shareholders in understanding and completing valid special meeting requests.