Allergan Salix talks trigger threats of lawsuit by William Ackman

If Allergan Inc. and Salix Pharmaceuticals Inc. go ahead with an acquisition deal, billionaire William Ackman said on Tuesday he would sue the Botox maker for bypassing its shareholders.

Pershing Square owns 9.72% of Allergan, making it the company’s largest shareholder.

It is still early days. We cannot even be certain whether Salix and Allergan have talked about terms, and a deal if there is one, is still a long way off. Several Wall Street reporters are saying, however, that negotiations are at an advanced stage.

If the two drugmakers do make progress, it would be a mighty blow for Mr. Ackman’s Pershing Square Management’s and Valeant Pharmaceuticals’ six-month struggle to acquire Allergan.

Mr. Ackman wrote a letter to Allergan’s Board of Directors. Regarding the talks with Salix, he wrote:

“This action would directly contradict your repeated published statements that: ‘While Allergan does not believe that Valeant’s offer provides compelling value relative to the alternatives available to the company, the Allergan board of directors fully supports the right of shareholders to vote on the value proposition offered by Valeant at the appropriate time.’”

A deal with no shareholder approval?

People familiar with the matter say Salix and Allergan have talked about an all-cash proposal for all of Salix’ shares, which would expire before December 18th, when Allergan’s shareholders have a special meeting. In other words, it would go ahead without shareholders’ support.

Mr. Ackman wrote:

“By undertaking an acquisition without a shareholder vote, with the purpose and desired effect of frustrating a Valeant transaction, you are breaching your commitment that shareholders would have a vote on the value proposition offered by Valeant. We do not believe you can lawfully undertake such a transaction, particularly given your failure to engage with Valeant. If you take such action we will immediately bring litigation against you (and any counterparty that aids and abets you) for breach of fiduciary duty.”

Allergan, which has a cash fund exceeding $14 billion, may have to pay up to $10 billion for Salix. If it does, the new entity would be far too big and complicated for Valeant to consider buying.

Salix Pharmaceuticals Inc., based in North Carolina, specializes in making and marketing gastrointestinal medications.

The Valeant-Allergan *hostile takeover saga is a lawyer’s heaven. In August, Allergan said it was suing Mr. Ackman and Pershing Square for insider trading as well as “other fraudulent practices.” The Botox maker also said the they had not revealed legally-required information during the lead up to Valeant’s hostile bid.

* A hostile takeover attempt occurs when the target company’s board is against the acquisition.

Pershing Square has spent the last two months threatening to sue Allergan. The Botox maker describes the threats as acts of desperation.