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ALLERGAN, INC., a Delaware corporation, and Karah H…., 2015 WL 4724025…
2015 WL 4724025 (C.D.Cal.) (Trial Pleading)
United States District Court, C.D. California.
Southern Division
ALLERGAN, INC., a Delaware corporation, and Karah H. Parschauer, an individual, Plaintiffs,
v.
VALEANT PHARMACEUTICALS INTERNATIONAL, INC., Valeant Pharmaceuticals
International, Agms, Inc., Pershing Square Capital Management, L.P., PS Management, GP,
LLC, PS Fund 1, LLC and William A. Ackman, an individual, and Does 1-10, Defendants.
No. 8:14-cv-01214-DOC (ANx).
January 28, 2015.
First Amended Complaint for Violations of Securities Laws
Latham & Watkins LLP, Peter A. Wald (Bar No. 85705), peter.wald@lw.com, 505 Montgomery Street, Suite
2000, San Francisco, California 94111-6538, Telephone: +1.415.391.0600, Michele D. Johnson (Bar No. 198298),
michele.johnson@lw.com, 650 Town Center Drive, 20th Floor, Costa Mesa, California 92626-1925, Telephone:
+1.714.540.1235; Wachtell, Lipton, Rosen & Katz, William D. Savitt (pro hac vice), wdsavitt@wlrk.com, Bradley R. Wilson
(pro hac vice), brwilson@wlrk.com, 51 West 52nd Street, New York, NY 10019, Telephone: (212) 403-1329; Latham & Watkins
LLP, Blair Connelly (Bar No. 174460), blair.connelly@lw.com, 885 Third Avenue, New York, NY 10022-4834, Telephone:
+1.212.906.1658; Latham & Watkins LLP, Colleen C. Smith (Bar No. 231216), colleen.smith@lw.com, 12670 High Bluff
Drive, San Diego, California 92130, Telephone: +1.858.523.5400; Latham & Watkins LLP, Matthew D. Harrison, (Bar No.
210981), matt.harrison@lw.com, 505 Montgomery Street, Suite 2000, San Francisco, CA 94111-6538, for plaintiffs, Allergan,
Inc. and Karah H. Parschauer.
JURY TRIAL DEMANDED
Plaintiffs Allergan, Inc. (“Allergan” or the “Company”) and Karah H. Parschauer (“Parschauer”) through their undersigned
counsel, allege as follows:
1. This is an action for declaratory, injunctive, and other relief for violations of Sections 13(d) and 14(e) of the Securities
Exchange Act of 1934 (the “Exchange Act”), codified at 15 U.S.C. §§ 78m(d) and 78n(e); Section 20A of the Exchange
Act, codified at 15 U.S.C. § 78t-1; and violations of Exchange Act Rules 13d-1, 13d-2, and 14e-3, codified at 17 CFR §§
240.13d-1, 240.13d-2, and 240.14e-3 and promulgated by the Securities and Exchange Commission (the “Commission” or the
“SEC”) under the Exchange Act; against Pershing Square Capital Management, L.P. (“Pershing Square”), PS Management GP,
LLC (“PS Management”), William Ackman (“Ackman”) and PS Fund 1, LLC (“PS Fund 1” and, collectively, the “Pershing
Defendants”); Valeant Pharmaceuticals International, Inc. (“Valeant”), Valeant Pharmaceuticals International (“Valeant USA”),
and AGMS, Inc. (“AGMS”) (collectively, “Valeant”) (Valeant and the Pershing Defendants are collectively referred to as
“Defendants”); and Does 1 through 10.
2. This case is about the improper and illicit insider-trading scheme hatched in secret by a billionaire hedge fund investor on the
one hand, and a public-company serial acquiror on the other hand. The purpose of the scheme was to generate windfall profits
on the backs of uninformed Allergan stockholders and to park a substantial block of shares with a stockholder predisposed to
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support an acquisition proposal. The method Defendants chose was to operate in secret, flouting key provisions of the federal
securities laws designed to protect investors from precisely this type of predatory conduct.
3. The hedge fund is Pershing Square, controlled by its founder, William Ackman. Ackman is an “activist investor” who typically
tries to make money by acquiring minority stakes in companies, and threatening their Boards of Directors with proxy contests
unless they take steps towards short-term increases in the stock price — often through a sale or other transaction.
4. The serial acquiror is a Canadian drug company, Valeant. Valeant has reported a compounded annual revenue growth rate
of over 52% in the past six years, by making more than one hundred acquisitions since 2008 — resulting in a staggering debt
load of $16.8 billion. Valeant acquires companies with successful products and strong cash flows and balance sheets, and then
cuts their research and development efforts all while reaping the profits of the acquired companies’ revenue streams. Valeant’s
business model depends on constantly making new and larger acquisitions to offset the debt burdens of the previous ones -before Valeant’s entire enterprise eventually collapses under its own weight.
5. In late 2012, Valeant turned its sights on Allergan — a well-established, well-run Orange County company with an impressive
cadre of successful products, $1.5 billion in cash on its balance sheet, a very small amount of debt, an A+ investment grade
rating, strong cash flows, and steady growth driven by productive research and development and expansion into new markets
with its strong sales force. Allergan’s admirable financial health and product mix made it an ideal target for Valeant — which
would gut Allergan’s research and development program to inflate short-term profits and use Allergan’s cash and cash flow to
service Valeant’s mounting debt.
6. Because of the crippling debt required to finance its many previous acquisitions, Valeant was unable to borrow enough money
to acquire Allergan, and therefore needed an ally with capital to contribute — and found one in Ackman. Ackman, in turn, found
in Valeant an incredible opportunity to buy Allergan stock with advance inside knowledge of a tender offer that was certain to
cause Allergan’s stock price to increase — guaranteeing him a massive return in record time. The plan was a “win-win”: Valeant
would get a head start on its takeover effort by parking a huge block of shares in friendly hands, and Pershing Square would
get a massive overnight profit with no risk. Of course, it was anything but a “win” for the Allergan stockholders who sold their
shares without knowing what Ackman and Pershing Square knew: that there was about to be a tender offer at a premium to
the price the stockholders accepted.
7. The federal securities laws, however, prohibit any “person” from trading in the stock of a potential target company while
in possession of nonpublic information about an upcoming tender offer, once the offering person has taken a substantial step
toward launching that offer. So, Valeant and Ackman came up with a plan to circumvent those rules: First, Valeant would take
every preliminary step in the tender offer playbook to acquire Allergan, all the while studiously avoiding calling their activity
a “tender offer.” Second, Pershing Square would form a shell entity to acquire Allergan stock, carefully timing and structuring
its purchases to avoid any disclosure requirements. Third, Defendants would label themselves as “co-bidders” for Allergan,
to create the legal fiction that they were a single offering person, and that there was no separate or other “person” trading on
the inside information. Unfortunately for them, the federal securities laws cannot be so easily defeated by a “now you see it,
now you don’t” sleight of hand.
8. To acquire Allergan stock, on February 11, 2014, Pershing Square formed shell entity PS Fund 1, an entity controlled entirely
by Pershing Square and in which Valeant later made a comparatively miniscule investment. Hidden behind this shell fund,
Valeant blatantly tipped Pershing Square regarding Valeant’s tender offer, and Pershing Square — through PS Fund 1 — embarked
on a massive acquisition of Allergan stock on that inside information.
9. On or about February 6, 2014, Valeant began taking substantial steps toward launching a tender offer directly to Allergan’s
stockholders. It hired financial and legal advisors, held multiple Board of Directors meetings, negotiated the respective financial
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commitments of Valeant and the Pershing Defendants, and agreed to commit over $75 million to the entity that would ultimately
acquire Allergan stock. Valeant and Pershing Square went so far as to claim in their financing agreement that they were not
contemplating a tender offer — a feeble, self-serving attempt to circumvent the insider trading rules — yet then agreed in the
same document on the procedures each would follow if a tender offer were to occur.
10. Armed with the material nonpublic information that Valeant would launch a tender offer for Allergan’s shares, PS Fund
1 began buying up significant amounts of Allergan stock on February 25, 2014 — taking careful steps to avoid making any
disclosure. For example, rather than buying Allergan stock directly, PS Fund 1 bought zero-strike price “call options” — options
that were economically certain to be exercised and which all parties knew would be exercised in short order. These zero-strike
options gave PS Fund 1 essentially the same ownership rights as if it had purchased the shares directly.
11. PS Fund 1’s LLC agreement was not amended to add Valeant as a member until April 3, 2014, and Valeant’s capital
contribution — a miniscule 3% of the total funds — was not made until April 10, 2014, just one day before PS Fund 1’s ownership
of Allergan stock crossed the 5% reporting threshold.
12. During the ensuing ten-day period from April 11 to April 21, 2014, PS Fund 1 continued on an even more rapid buying
spree to exploit the Williams Act’s archaic ten-day window, an oft-criticized provision that allows an investor to wait ten full
days after crossing the 5% threshold before disclosing its acquisitions and intentions to the market. 1
13. On April 21, 2014, the Pershing Defendants finally disclosed PS Fund 1’s stake in Allergan by filing a Schedule 13D. 2
14. By the time the Pershing Defendants filed the Schedule 13D on April 21, 2014, PS Fund 1 had acquired an astonishing 9.7%
of Allergan’s outstanding stock, for a total investment at the time of over $3.2 billion, without providing Allergan’s stockholders
and the marketplace any disclosure about Valeant’s control ambitions.
15. Neither Allergan’s stockholders nor the marketplace was aware of Ackman’s secret purchasing program, or that Valeant’s
tender offer was coming. Those who sold during this period, even sophisticated investors, sold on an uninformed basis at an
unfair price — while Ackman was unfairly obtaining huge profits from his early inside information about the expected tender
offer.
16. Finally, once Pershing Square had accumulated its position, Valeant publicly announced for the first time that it wished
to “negotiate” a merger agreement with Allergan’s Board of Directors, and offered a mix of cash and Valeant stock for each
Allergan share. Upon that April 22, 2014 announcement, the value of Pershing Square’s investment in Allergan stock increased
by more than a billion dollars.
17. In its first communications, Valeant carefully avoided disclosing that it planned to launch a “tender offer,” claiming instead
to be interested in a friendly merger. Based on Allergan’s response to Valeant’s prior overture, however, and as corroborated
by analyst commentary in February 2014, Valeant knew that Allergan would not be interested in merging with Valeant -particularly if Allergan’s stockholders would be compensated in large part with Valeant stock, as Valeant proposed. Indeed,
Valeant later conceded as much. And contrary to Valeant’s claim that it was looking for a friendly deal, Valeant and Pershing
Square from the outset engaged in exactly the sorts of pressure tactics commonly associated with hostile tender offers: a media
blitz, multiple threatening letters to Allergan’s Board of Directors, and direct communications with Allergan’s customers and
employees falsely claiming that the deal was a foregone conclusion.
18. As Valeant fully expected, after carefully considering Valeant’s proposal (as improved on two separate occasions), Allergan’s
Board of Directors concluded that the offer grossly undervalued Allergan and was not in the best interests of its stockholders,
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ALLERGAN, INC., a Delaware corporation, and Karah H…., 2015 WL 4724025…
and made clear that Allergan would not engage in discussions about a potential merger transaction on the terms Valeant was
proposing. And so, on June 2, 2014 — just six weeks after PS Fund 1 completed its purchases of Allergan stock — Valeant
dropped the pretense and publicly announced that it would launch a hostile exchange offer for Allergan’s shares. Upon formally
commencing the offer two weeks later on June 18, 2014, Valeant put the lie to the financing agreement’s self-serving declaration
that the parties had not taken steps toward a tender order, and confirmed that it had planned to launch a tender offer all along.
19. Simultaneously, Pershing Square commenced a proxy contest to unseat six of the nine Allergan directors — hoping to put
in place individuals more in line with Valeant’s way of thinking. On July 11, 2014, Pershing Square filed a definitive proxy
statement with the Commission seeking to solicit proxies of the holders of 25% of Allergan’s stock to call a special meeting for
the purposes of removing the six directors (the “Special Meeting”). 3 And on June 18, 2014, Valeant formally commenced a
hostile exchange offer by filing a Schedule TO and Registration Statement on Form S-4. 4
20. Pershing Square submitted written requests to call the Special Meeting on August 22, 2014, and the Special Meeting was
subsequently set for December 18, 2014. On September 24, Defendants filed a Definitive Proxy Statement, soliciting proxies
in support of eight shareholder proposals, including placement of directors who would turn a blind eye to Defendants’ illegal
acquisition of shares. In service of Valeant’s scheme to buy Allergan at a grossly inadequate price, Defendants accused the Board
of Directors it sought to replace of serving its own entrenched interests, and of stubbornly refusing to engage in discussions
with Valeant or to allow stockholders to vote on Valeant’s purportedly “premium” proposal.
21. The SEC filings made by Valeant and Pershing Square in pursuit of Valeant’s offer were demonstrably false and misleading.
Among other misstatements, Defendants’ disclosures materially misstated their relationship in an effort to perpetuate the facade
that their conduct was legal under the federal securities laws. In truth, Defendants’ agreements, statements, and actions made
clear that they were separate “persons” with separate interests in their fraudulent scheme. Valeant was, at all relevant times, an
“offering person.” Pershing Square, which had purchased Allergan shares with knowledge of Valeant’s substantial steps toward
a tender offer, was an “other person” using inside information to the detriment of the market.
22. Plaintiffs filed their original complaint on August 1, 2014, seeking relief for imminent harm resulting from Defendants’
unlawful conduct. Following limited expedited discovery, in October 2014, Plaintiffs filed a motion seeking a preliminary
injunction that would (a) enjoin Defendants from exercising beneficial rights of ownership in the shares PS Fund 1 acquired
using nonpublic material information regarding Valeant’s anticipated tender offer, and (b) enjoin Defendants from voting proxies
solicited by Pershing Square for the Special Meeting on the basis of misleading proxy materials and SEC filings, unless or until
Defendants corrected those statements.
23. In an order dated November 4, 2014, this Court granted Plaintiffs motion in part. On the merits, the Court found that Ms.
Parschauer had raised “at least” and “at minimum” “serious questions” regarding whether Valeant took substantial steps toward
a tender offer prior to PS Fund 1’s purchases and whether Valeant and Pershing Square were a single offering person–and
thereby “raised serious questions going to the merits of their Rule 14e-3 claim.” With respect to Plaintiffs’ Section 14(a) and Rule
14a-9 claims, the Court concluded that Plaintiffs had raised serious questions going to the merits; that the “potential threat of an
uninformed vote” on proposals that will “make significant changes to Allergan’s corporate governance” constituted irreparable
harm; that requiring corrective disclosures was “preferable to sorting out post-vote remedies”; that “the balance of the equities
tips in Plaintiffs’ favor”; and that “the proposed injunction to make corrective disclosures is in the public interest.”
24. The Court accordingly ordered Defendants to make corrective disclosures that highlighted the appreciable risks of liability
Defendants assumed based on their course of conduct. In particular, the Court-ordered disclosure noted the significant “risks
and exposures” “[s]hould Valeant and Pershing Square ultimately be found to have violated Section 14(e) and Rule 14e-3,”
including “private stockholder class actions, which could result in significant damages awards or disgorgement of profits.”
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25. On November 17, 2014, Allergan announced that it had entered into a merger agreement with Actavis plc (“Actavis”),
subject to certain closing conditions, including a vote by Allergan’s stockholders to approve the transaction.
26. On November 18, 2014, following Allergan’s announcement of the Actavis agreement, Pershing Square filed a Form RW
with the Commission withdrawing its Definitive Proxy Statement. 5 Pershing Square also “discontinue[d] its proxy solicitation
in connection with the special meeting of Allergan, Inc. shareholders.” 6 A day later, on November 19, 2014, Valeant filed
amendment number 6 to its Schedule TO, withdrawing its tender offer. 7 All parties then agreed to cancel the Special Meeting.
27. On November 19 and 20, 2014, consistent with the terms of a February 25, 2014 agreement between Valeant and Pershing
Square (the “Relationship Agreement”), which required Pershing Square to pay 15% of its profits to Valeant if an acquiror
other than Valeant agreed to acquire Allergan, PS Fund 1 sold 2,242,560 shares of Allergan at a price of $212.80 and $210.36
per share, respectively. 8
28. On November 21, 2014, Pershing Square made certain amendments to its Schedule 13D, reflecting PS Fund 1’s November 19
and 20 stock sales and the effective termination of Defendants’ Relationship Agreement. 9 Defendants attached an amendment
to their Relationship Agreement, which provides that Valeant is no longer a member of PS Fund 1 after it receives a certain
share of the profits. Subject to these (and other previous) amendments, Pershing Square’s April 21, 2014 Schedule 13D remains
operative. 10 Pershing Square continues to reserve the right to seek major changes to Allergan’s business.
29. Pershing Square still owns 8.9% of Allergan common stock. As of the date of this First Amended Complaint, the Pershing
Defendants have profited from their illegal scheme to the tune of over $2.5 billion.
30. Defendants’ unlawful conduct has caused substantial harm to Plaintiffs and is not excused now that Valeant has abandoned
its hostile takeover effort. Plaintiffs accordingly seek the following relief: (a) a declaration that the Pershing Defendants violated
Rule 14e-3 by trading while in possession of material nonpublic information about a tender offer, and that Valeant violated Rule
14e-3 by communicating information that was likely to be used in such a manner; (b) a declaration that the Pershing Defendants
failed to file full and accurate disclosures required by Section 13(d) of the Exchange Act; (c) an order requiring that the Pershing
Defendants rescind the purchase of Allergan securities that were acquired while in possession of material nonpublic information
in violation of Rule 14e-3, or that were acquired prior to filing complete and accurate Schedule 13D; (d) an order requiring
that Defendants correct by public means their material misstatements and omissions and to file with the Commission accurate
disclosures required by Section 13(d) of the Exchange Act; (e) such injunctive relief as may be necessary to remedy Defendants’
unlawful conduct; and (f) an order awarding Plaintiff Parschauer damages under Sections 14(e) and 20A of the Exchange Act.
PARTIES
31. Plaintiff Allergan is a publicly traded Delaware corporation. It is a multi-specialty health care company that develops
and commercializes pharmaceuticals, biologics, medical devices, and over-the-counter products for the ophthalmic, medical
aesthetics, medical dermatology, and other specialty markets globally. Allergan is listed on the New York Stock Exchange under
the symbol “AGN.” Allergan employs roughly 11,500 employees, many of whom are located at its principal place of business
in Irvine, California.
32. Plaintiff Karah H. Parschauer is and at all relevant times was an employee and stockholder of Allergan. Ms. Parschauer
exercised and sold Allergan stock options on February 26, 2014, for a price of $127.60 and on March 11, 2014, for a price
of $129.08.
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ALLERGAN, INC., a Delaware corporation, and Karah H…., 2015 WL 4724025…
33. Defendant Valeant is a publicly traded company governed by the laws of the Province of British Columbia, Canada, with
its principal place of business in Laval, Quebec, Canada. Valeant manufactures and markets pharmaceuticals, over-the-counter
products, and medical devices in the areas of eye health, dermatology, and neurology therapeutic classes. Valeant actively and
directly participated in the proposed offer made to Allergan employees and stockholders.
34. Defendant Valeant USA is a Delaware corporation with its principal place of business in New Jersey. Valeant USA actively
and directly participated in the proposed offer made to Allergan employees and stockholders, and became a member of PS
Fund 1 on April 3, 2014.
35. Defendant AGMS is a Delaware corporation and wholly owned subsidiary of Valeant Pharmaceuticals International, Inc.
Valeant pursued its tender offer through AGMS.
36. Defendant Pershing Square is an investment adviser founded in 2003 and registered with the SEC under the Investment
Advisers Act of 1940, as amended. It manages a series of hedge funds. Pershing Square is a Delaware limited partnership with
its principal place of business in New York.
37. Defendant PS Management serves as the sole general partner of Pershing Square. PS Management is a Delaware limited
liability company with its principal place of business in New York.
38. Defendant William A. Ackman is the founder and CEO of Pershing Square. Ackman resides in New York. Ackman, by
virtue of his position with Pershing Square, at all relevant times controlled PS Fund 1.
39. Defendant PS Fund 1 is a limited liability company formed by and among: Pershing Square; Pershing Square, L.P., a
Delaware limited partnership; Pershing Square II, L.P., a Delaware limited partnership; Pershing Square International, Ltd., a
Cayman Islands exempted company; Pershing Square Holdings, Ltd., a Guernsey limited liability company; and, nearly two
months later, Valeant USA. PS Fund 1 was formed for the purpose of serving as the acquisition vehicle in the acquisition of
Allergan stock. PS Fund 1 was formed in Delaware on February 11, 2014, and has its principal place of business in New York.
PS Fund 1 at all relevant times was controlled by Pershing Square and, by virtue of his position with Pershing Square, Ackman.
40. Allergan does not know the names and identities of Does 1 through 10, inclusive, and therefore sues those defendants
by such fictitious names. Allergan is informed and believes, and on that basis alleges, that Does 1 through 10, inclusive, are
responsible for the acts alleged in this Complaint. When the true names of such fictitious defendants are ascertained, Allergan
will seek leave of this Court to amend this Complaint to name those individuals or entities.
JURISDICTION AND VENUE
41. This Court has subject matter jurisdiction over this action pursuant to 15 U.S.C. §§ 78aa, 78m(d)(3), and 28 U.S.C. § 1331.
42. This Court has personal jurisdiction over Defendants because each of them has sufficient minimum contacts in the State
of California to satisfy California’s long-arm statute and constitutional due process requirements as, on information and belief,
Defendants have participated in a coordinated takeover attempt of Allergan, which is located in California.
43. Venue is proper in the United States District Court for the Central District of California pursuant to 15 U.S.C. § 78aa and
28 U.S.C. § 1391(b) and (c).
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44. Declaratory relief is appropriate pursuant to 28 U.S.C. § 2201.
BACKGROUND FACTS
Allergan
45. Allergan is a multi-specialty health care company established more than 60 years ago with a commitment to uncover medical
advances and develop and deliver innovative and meaningful treatments. 11 Allergan’s core strengths include the development of
pharmaceutical and medical devices in the areas of ophthalmology, dermatology, neurosciences, and related disciplines. Based in
California and incorporated in Delaware, Allergan has a global presence, with approximately 11,500 employees in 38 countries.
Perhaps Allergan’s greatest strength is its effective and industry-leading research and development operation. In 2013, research
and development expenditures were approximately 16.8% of product net sales, or approximately $1 billion. 12 Allergan’s
research efforts have led to the development of numerous glaucoma and dry-eye treatments, topical retinoid Tazorac®, and
significant expansions in the uses of its neuromodulator Botox®.
Valeant
46. By contrast, Valeant, while styling itself as a traditional pharmaceutical manufacturer, has turned its back on the conventional
drivers of long-term profitability — successful research and development — in favor of aggressive expansion, cost-cutting, and
short-term value maximization.
47. Over the past four years, Valeant has embarked on a series of aggressive mergers and takeovers, beginning with the
September 2010 takeover of Biovail Corp. Since then, Valeant has acquired, inter alia, cold-and-flu remedy manufacturer Afexa
Life Sciences, Inc. (December 2011), medical cosmetics company Medicis Pharmaceutical Corp. (December 2012), skin-care
and aesthetics products manufacturer Obagi Medical Products, Inc. (April 2013), eye care company Bausch & Lomb Holdings,
Inc. (August 2013), and dermatological device maker Solta Holdings Inc. (January 2014), 13 as well as a number of smaller
concerns. In all, Valeant has entered into over 100 transactions since 2008. 14
48. This pursuit of takeovers is the essence of Valeant’s business model. As the Wall Street Journal noted, “[Valeant CEO]
Michael Pearson runs a drug company, but that doesn’t mean he wants to spend money on science.” 15 Indeed, under Pearson,
research and development spending at Valeant went from 12% of revenue in 2007 to a mere 3% in 2013.
49. This strategy, and the prospect of potential collapse of the Valeant business model once it runs out of targets to acquire,
has been noted by commentators and, perhaps, Valeant management as well. As one June 2014 article stated, sales are flat and
executives are looking for the exits. “The most telling sign that the gig [sic] is up for Mr. Pearson is the high level of turnover
in executives. You are more likely to see a unicorn than a Valeant executive with a five-year pin.” 16 Another analyst noted in
May 2014, “there have been six executives who left, senior executives, in the past 15 months and there has been a lot of insider
selling, including the Executive Vice President of Corporate and Business Development, who sold stock yesterday . . . there
seems to be not a lot of confidence from inside the Valeant executive suite here.” 17 That analyst further noted, “you have to
analyze a company that’s not growing organically and has to deliver value by doing bigger and bigger acquisitions, and usually
the companies do an acquisition too far.” 18
50. Indeed, Valeant’s own financial advisors, Morgan Stanley, have referred to Valeant and its unsustainable business model
as a “house of cards.” 19
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Pershing Square
51. Pershing Square, led and controlled by Ackman, provided financing that Valeant required in its pursuit of Allergan. But
as set forth below, Pershing Square did so knowing that Valeant was mounting a tender offer for Allergan, thereby locking in
considerable profit for Pershing Square should a deal be consummated (by Valeant or anyone else).
52. Pershing Square manages approximately $13 billion in capital. Ackman has a reputation of being an “activist” hedge fund
manager, who “drive[s] up the stock and get[s] out — fast.” 20
53. Pershing Square has previously pursued widely known companies such as Target, McDonald’s and Wendy’s — in some
cases, extracting significant concessions from the target, and in others, failing to do so. Its interest in Allergan came on the
heels of several recent high-profile stumbles, including Ackman’s ill-fated bets against health supplement distributor Herbalife
and retailer J.C. Penney Co. In each case, Ackman’s efforts to force change on the target were rejected, and Pershing Square
withdrew its investments. 21
54. In early 2014, Pershing Square made its largest bet ever — Ackman collaborated with Valeant in its proposed Allergan
takeover by providing financial support, while remaining free to accept a better offer if one emerged. The inside maneuvering
between Pershing Square and Valeant allowed Pershing Square to recognize initial profits of more than $1 billion upon Valeant’s
April 22 announcement. But as set forth below, Pershing Square did so illegally by taking advantage of Valeant’s inside
information and acquiring a very significant stake in Allergan ahead of the broader market in direct contravention of the
securities laws — all with Valeant’s full complicity.
Valeant Takes Substantial Steps Toward a Tender Offer
55. Valeant had been eyeing a potential transaction with Allergan since the fall of 2012. On September 10, 2012, Pearson reached
out to Allergan’s CEO, David Pyott and expressed interest in a business combination with Allergan.
56. Allergan’s Board of Directors was not interested in a transaction with Valeant in 2012 and declined to engage in discussions.
Pearson was thus well aware in early 2014 that Allergan was not likely to be supportive of a friendly merger, and so Valeant
began plotting an alternate course.
57. Less than a year after its very expensive Bausch & Lomb acquisition in November 2013, debt-laden Valeant grew even
more interested in acquiring cash-rich Allergan to help even out Valeant’s books.
58. Around the same time, Pershing Square hired William F. Doyle, a friend of Pearson’s and a classmate of Ackman’s from
Harvard Business School, as a “special advisor” — providing the inside connection Pearson needed to reach out to Pershing
Square.
59. As early as February 4, 2014, and continuing for the next several weeks, Valeant took substantial steps toward a tender offer
by engaging in a scheme with the Pershing Defendants to start acquiring Allergan stock.
60. First, through Doyle, Pearson and Ackman met on February 4, 2014, to discuss potential partnerships, including with respect
to Allergan. Beginning February 6, 2014, Valeant engaged three separate law firms — Sullivan & Cromwell LLP, Skadden,
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Arps, Slate, Meagher & Flom LLP, and Osler, Hoskins & Harcourt LLP — as counsel in connection with a potential Allergan
transaction.
61. Also on February 6, Ackman and Pearson had a telephone call to discuss a potential transaction structure in which Valeant
would identify a specific target and disclose it confidentially to Pershing Square, which would then decide whether it was
interested in working with Valeant. At the same time, Pearson sought to meet with Allergan’s CEO Pyott to follow up on their
September 2012 discussions.
62. On February 7, 2014, the Finance and Transactions Committee of Valeant’s Board of Directors held a telephonic meeting at
which they discussed a possible combination of Valeant and Allergan. During the next two weeks, Valeant’s Board of Directors
— and different subcommittees thereof — met five more times to discuss takeover plans.
63. On February 9, 2014, Valeant and Pershing Square entered into a confidentiality agreement, after which Pearson informed
Ackman of Valeant’s interest in a potential transaction with Allergan. 22
64. With its inside knowledge of Valeant’s impending takeover, Pershing Square agreed to acquire a significant Allergan stake
using its own funds, to support Valeant’s efforts and to secure massive profits for itself. In furtherance of Valeant’s plan, on
February 11, 2014, Pershing Square and other Pershing Square entities formed a new Delaware limited liability company, PS
Fund 1, that would ultimately carry out the stock acquisition.
65. On February 13, 2014, representatives of Valeant and Pershing Square and their respective counsel met to discuss a potential
transaction involving Allergan.
66. On February 15, 2014, Andrew Davis, Vice President of Business Development at Valeant, emailed Pearson attaching a
document acknowledging that the “Allergan Opportunity” would consist of a “[h]ostile cash and stock merger.”
67. Between February 20 and 25, 2014, representatives of Valeant and Pershing Square and their respective counsel exchanged
drafts of and negotiated a contractual and financial agreement related to the purchase of equity in Allergan. The parties finalized
and executed the Relationship Agreement on February 25, 2014.
68. Under the Relationship Agreement, Valeant agreed to contribute $75.9 million — the maximum allowed without triggering
antitrust disclosure requirements — to the purported “co-bidder entity” in PS Fund 1 to assist with the Pershing Defendants’
acquisition of a significant stake of Allergan’s stock at non-premium prices before Valeant disclosed its takeover plans to the
market. Pershing Square supplied funds of over $3 billion, and retained sole control over PS Fund 1.
69. Throughout the weeks during which Valeant was taking these substantial steps, it remained clear to Valeant that Allergan
would not likely be interested in negotiating a friendly merger with Valeant. On February 10, 2014, in connection with Allergan
senior management’s meetings with analysts, Sanford B. Bernstein & Co. published a report of its discussions with Mr. Pyott,
reporting that an acquisition of Allergan by Valeant “was not a good fit and shareholders would hesitate to take Valeant paper.”
That same day, Bank of America Merrill Lynch analyst Gregg Gilbert issued a note stating that Allergan would not be interested
in a transaction with Valeant.
70. In light of this negative press, and consistent with his expectation that a friendly combination would not be possible, Pearson
cancelled his scheduled February 14, 2014 meeting with David Pyott.
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71. Given this chronology, Pearson knew that a negotiated transaction would not be possible and that a hostile tender offer
would ultimately be necessary. Pearson’s later public statements confirm as much: on June 17, 2014 — the day before Valeant
launched its tender offer — Pearson stated that he was “correct” in his initial suspicion that Valeant “would ultimately have to
go directly to Allergan shareholders.” 23
72. Thus, before they entered into the Relationship Agreement on February 25, and before PS Fund 1 had purchased any shares of
Allergan, Valeant had already taken substantial steps toward commencing its tender offer, including: (i) engaging legal counsel;
(ii) reaching out to Ackman and convincing him to participate as a financier and supporter; (iii) holding Board of Directors
and committee meetings regarding the potential offer on February 7, 9, 16, 17, 19 and 21, 2014; (iv) negotiating the respective
financial commitments of Valeant and the Pershing Defendants; and (v) agreeing to commit over $75 million to the Relationship
Agreement to help finance the stock acquisition.
Valeant and Pershing Square Violated Rule 14e-3 By Tipping and
Trading on Material Nonpublic Information About a Tender Offer
73. In the Relationship Agreement, Defendants specifically claimed to be “co-bidders” in connection with a potential Allergan
transaction — likely in order to support an argument that they were all the same “person” for purposes of the insider trading
rules. Armed with this self-serving label, PS Fund 1 (directed by Pershing Square and Ackman) secretly purchased a substantial
amount of Allergan stock without filing disclosure documents with the Commission or paying any form of control premium.
74. Pershing Square was the primary actor in purchasing Allergan stock; it provided approximately 97.5% of the funding for
PS Fund 1, and the Relationship Agreement states that Pershing Square Capital Management “will direct the management”
of PS Fund 1.
75. In a series of complex and undisclosed transactions between February 25 and April 21, 2014, PS Fund 1 quickly acquired
9.7% of Allergan’s stock (the “Purchase Program”), primarily through over-the-counter (“OTC”) call options and OTC equity
futures. This percentage of Allergan’s stock was just shy of the “short swing” profits prohibition in Section 16 of the Exchange
Act, which requires holders of greater than 10% of a company’s stock to disgorge any profits made in a six-month buy-sell period.
76. The Pershing Defendants began the Purchase Program at a time when they unquestionably had material nonpublic
information relating to Valeant’s forthcoming tender offer, in violation of Rule 14e-3’s trading prohibition.
77. Rule 14e-3 provides that, where any person has taken “a substantial step or steps” (the “offering person”) to commence a
tender offer of a target company, any “other person” who is in possession of material nonpublic information relating to that
tender offer is prohibited from purchasing or selling any securities of the target company, unless the information is publicly
disclosed within a reasonable time prior to the purchase or sale. The rule imposes a duty to disclose or abstain from trading
irrespective of whether the trader owes a duty to respect the confidentiality of the information.
78. Valeant took substantial steps toward a tender offer for Allergan’s stock beginning on or before February 6, 2014. Moreover,
having already been rebuffed, Valeant knew that it would not likely be able to acquire Allergan through a “friendly” deal, and
that a hostile tender offer was therefore inevitable.
79. Valeant told Pershing Square about Valeant’s confidential plans to launch a tender offer precisely because Valeant wanted
Pershing Square to trade on that information. Valeant wanted as many shares as possible to be held by stockholders that Valeant
perceived as likely to support an Allergan takeover, but since it could not pay for the shares directly, it turned to Pershing Square.
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The illicit tip from Valeant was Pershing Square’s incentive to join the scheme. Pershing Square agreed and acquired 9.7% of
Allergan’s outstanding stock while in possession of that material, nonpublic information.
80. None of the parties disclosed Valeant’s takeover intentions until long after the purchases were made, and long after Allergan
stockholders — including Plaintiff Parschauer– and the overall market had been damaged to the benefit of Pershing Square
and Valeant.
81. Plaintiff Parschauer suffered damages as a result of these trades because she did not know the information she was entitled to
know under the disclose-or-abstain-from-trading principle of Rule 14e-3, and consequently sold for an unfair price and did not
receive the benefit of the premium that followed once the Pershing Defendants’ material nonpublic information was released to
the market. Pershing Square thus exploited exactly the sort of informational advantage that Rule 14e-3 was designed to prevent,
and reaped an initial benefit of more than $1 billion when Valeant’s proposal was announced. As the Commission put it when
adopting Rule 14e-3, “[t]he Commission has previously expressed and continues to have serious concerns about trading by
persons in possession of material, nonpublic information relating to a tender offer.” 24 This practice results in unfair disparities
in market information and market disruption. Security holders who purchase from or sell to such persons are effectively denied
the benefits of disclosure and the substantive protections of the Williams Act. If furnished with the information, these security
holders would be able to make an informed investment decision, which could involve deferring the purchase or sale of the
securities until the material information had been disseminated or until the tender offer had been commenced or terminated.
Moreover, the Williams Act was designed to avert a ‘stampede effect’ in the context of tender offers, and the trading on
material, nonpublic information and the dissemination of leaks and rumors in connection with such trading tends to promote
this detrimental effect.” 25
82. In an effort to circumvent Rule 14e-3, Valeant and Pershing Square attempted in their written agreements with each other to
construct a “co-bidder” fiction — falsely suggesting that they should be considered a single “person” or “offering person” under
the Rule. However, Valeant and Pershing Square’s construction of a shell entity through which to act, and their self-serving
description of their own conduct, are irrelevant. The terms of the Relationship Agreement, the parties’ subsequent actions, and
the economics of this attempted takeover make clear that they were not acting as a single or joint “offering person” at the time
of Pershing Square’s trades.
83. At the time the proposed acquisition was announced, Valeant was the sole offering person. The proposal to acquire Allergan
was not made by Ackman or Pershing Square, nor was it made on behalf of Ackman or Pershing Square. Crucially, only Valeant
offered consideration in the form of shares and cash to Allergan’s stockholders. By contrast, Ackman and the other Pershing
Square entities together offered precisely zero to Allergan stockholders — they were seeking to sell Allergan stock, as Valeant
sought to buy it. Ackman would not have become a Board of Directors member of Valeant, nor otherwise become a control
person of Valeant, and would not receive any business or asset of Allergan as a result of the tender offer.
84. Ackman also confirmed publicly that it was Valeant, and not Pershing Square, that retained complete control over the
transaction. In a July 21, 2014 interview on CNBC, when asked whether he and Valeant would “raise their offer” in light of
Allergan’s strong second quarter performance, Ackman responded, “Valeant controls what they’re prepared to pay.” Regardless
of semantics, Ackman and the Pershing Square entities were not an “offering person” within the meaning of Rule 14e-3.
85. Valeant concedes that it was not even added as a member of PS Fund 1 until well into the Purchase Program — on April
3, 2014 — and did not contribute any capital to PS Fund 1 until April 10, 2014. By this time, PS Fund 1 had acquired more
than 11 million shares or options.
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86. Even after Valeant purportedly became a member of PS Fund 1, the nature of Defendants’ relationship remained clear:
Valeant was an offering person, and PS Fund 1 — at the direction of Pershing Square — was another person acquiring shares
in violation of Rule 14e-3.
87. Under the Relationship Agreement, Pershing Square retained the authority to act for its own account — even in contravention
of Valeant’s interests. The Relationship Agreement provides that it will terminate if a “Third Party Transaction Proposal” — a
public proposal by a bidder other than Valeant — is made, and Valeant does not match or exceed that proposal within 45 days.
88. The Relationship Agreement also gave Valeant unilateral discretion to terminate the contract upon notice to Pershing Square
that “it is not interested in consummating” a transaction with Allergan. Regardless of the “co-bidder” label, under the terms of
the Relationship Agreement, Pershing Square was not the same “person” as Valeant with respect to this proposal. Rather, it was
a separate, independent investor, unaffiliated with Valeant, which retained the freedom to accept a better deal when one came
along — while Valeant retained (and exercised) its unilateral discretion to terminate the takeover altogether.
89. Valeant and Pershing also took great pains to conceal their true intent early on, by purposely including language in their
agreement that “no steps have been taken toward a tender or exchange offer.”
90. This statement was not only demonstrably false, but also clearly crafted in an attempt to circumvent the prohibitions of Rule
14e-3 and requirements of the Williams Act more generally.
The Purchase Program Was Carefully Designed to Avoid Required Disclosure
91. In addition to violating Rule 14e-3, the Purchase Program was aimed at preserving secrecy and seeking to evade disclosure
requirements at every turn.
92. The manner in which these trades occurred was carefully designed to preserve the secrecy of the block acquisitions, and
therefore Pershing Square’s informational advantage over the market.
93. On February 25 and 26, 2014, PS Fund 1 acquired approximately 600,000 shares of the outstanding common stock of
Allergan, stopping just short of $75.9 million worth to avoid having to disclose its purchases under the Hart-Scott-Rodino
(“HSR”) Act.
94. Between March 3, 2014 and April 8, 2014, PS Fund 1 acquired additional Allergan shares, bringing its holdings up to 4.9%,
through deep-in-the-money, American-style, OTC zero-strike call options.
95. The counterparty for all of the option and equity forward trades was the same entity: Nomura. The call options that PS
Fund 1 purchased from Nomura had strike prices of less than $1.35 — roughly 100 times less than the actual price of the stock
that day. Because of the extremely low strike price, the options were guaranteed to be exercised and thus were the equivalent
of outright ownership. Such a low strike price meant that PS Fund 1 paid Nomura almost the full value of the share for each
option, and had only to pay the balance (less than $1.35 per share) to exercise the option and convert it into a share of Allergan
stock. As commentators have pointed out, these so-called options were effectively common stock because they were certain to
be exercised. According to one: “Ackman’s options are 99 percent in-the-money; there’s no optionality at all. . . . Ackman hired
dealers to buy stock for him, but the contracts were phrased as options for regulatory purposes.” 26
96. By remaining under the 5% threshold of Section 13(d) and having PS Fund 1 purchase these so-called options, Defendants
deliberately avoided federal securities and antitrust disclosure requirements, keeping their scheme secret while victimizing
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unknowing Allergan stockholders. Defendants were able to acquire well over the HSR threshold by the third day of purchasing
and still delay FTC notification until after public announcement of the takeover plans on April 21.
97. Pershing Square then halted trading for two days (April 9 and 10) to let Allergan’s stock price settle down to a purported
“unaffected” stock price.
98. Taking advantage of the ten-day window under Section 13(d), PS Fund 1 continued with the second half of its aggressive
accumulation of Allergan stock between April 11 and April 21, 2014. During this window, PS Fund 1 increased its holdings
to nearly 10% of Allergan’s stock (by acquiring an almost 14 million additional shares) through additional deep-in-the-money
OTC call options and OTC equity forwards.
99. On April 21, 2014 PS Fund 1 entered into an over-the-counter equity forward contract with Nomura. The equity forward
contract allowed PS Fund 1 to buy the specified number of shares of Allergan stock on a later unspecified date — in essence,
guaranteeing that the options were the equivalent of common stock. Not only was this equivalence an economic certainty, it was
expressly contemplated as part of Defendants’ “Proposed Acquisition Plan,” through which PS Fund 1 would acquire options
and then convert them into actual ownership shares once it obtained HSR clearance.
100. Indeed, on the day Pershing Square received HSR clearance to exercise the options, and thereby acquired 24.8 million
shares of Allergan stock from Nomura, Allergan’s daily trading volume was only about 3.7 million total shares — meaning that
Nomura had covered the options by purchasing the 24.8 million shares long before the date of exercise.
101. By April 21, 2014, when Pershing Square finally disclosed in a Schedule 13D that PS Fund 1 had acquired 9.7% of the
outstanding Allergan stock, Defendants still had not disclosed Valeant’s takeover intentions. None of the stockholders who sold
to PS Fund 1 or its counterparty Nomura knew what Defendants knew: that Valeant was about to announce a takeover bid at
a premium to Allergan’s trading price.
102. From the time these significant acquisitions began, Allergan’s stock price increased from $125.54 per share on February
25, 2014, to a closing price of $163.65 per share on April 22, 2014, the day of Valeant’s announced proposal.
Defendants’ Statements and Actions Further Reveal the Plain Fact That They Were Separate Persons
103. The fact that Valeant and Pershing Square were not, and cannot be considered, the same “offering person” is consistent
with Valeant’s and Ackman’s public statements. For example, in its amended S-4, Valeant expressly disclaimed any affiliation
with Pershing Square, in contending that its proposed acquisition of Allergan would not be a transaction with an “Interested
Stockholder” under the terms of Allergan’s certificate of incorporation. Under Article 15 of that certificate, an affirmative vote
of at least two-thirds of “disinterested shares” is required for the approval of a transaction between the Company and “any other
corporation or any of its affiliates that individually or in the aggregate are directly or indirectly the beneficial owners of 5% or
more of the outstanding voting shares of the Company.” In the amended S-4, Valeant took the position that, because Valeant
itself owns only 100 shares, and because in Valeant’s view it cannot be said to be the “owner” of the shares of Allergan common
stock held by PS Fund 1, a merger between Valeant and Allergan would not be a “Business Combination” with an “Interested
Stockholder.” Although incorrect for purposes of Article 15, Valeant itself acknowledged that Valeant is and always was the
offering person, while PS Fund 1 was a separate, unaffiliated entity.
104. After Valeant and Pershing Square entered into the Relationship Agreement, and even after they publicly announced that
agreement on April 22, 2014, Ackman repeatedly represented that he was just another Allergan stockholder looking to maximize
value, whether through a transaction with Valeant or some other company.
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105. In a May 5, 2014 letter from Ackman to Michael Gallagher, Allergan’s Lead Independent Director, Ackman wrote: (1) “As
Allergan’s largest shareholder with 9.7% of the common stock, we look forward to working with you and the rest of the board
to maximize value for all Allergan shareholders”; and (2) “As Allergan’s largest shareholder, we are supportive of Allergan
making the best possible deal with Valeant or identifying a superior transaction with another company” (emphasis supplied).
106. In a May 12, 2014 letter from Ackman to Matthew Maletta, Allergan’s Associate General Counsel and Secretary, making
demand under Delaware General Corporation Law Section 220 for the inspection of Allergan’s books and records, Ackman
wrote, “[t]he purpose of this demand is to enable the Requesting Stockholder to communicate with fellow stockholders of
the Company on matters relating to their mutual interest as stockholders… including, without limitation, the solicitation of
views regarding Valeant Pharmaceuticals International Inc.’s proposal to acquire the Company.” In the letter, Ackman correctly
referenced the proposal and the transaction as Valeant’s — not Pershing Square’s — a characterization consistent with Allergan’s
public rejections of the offer and inconsistent with any attempt to cast Pershing Square and Valeant as a single “person.”
107. On May 13, 2014, Valeant and Pershing Square filed a Preliminary Proxy Statement with the Commission to conduct a
non-binding “shareholder referendum” purporting to direct the Allergan Board of Directors to “promptly engage in good faith
discussions with Valeant regarding Valeant’s offer to merge with the Company,” but without precluding the Allergan Board of
Directors from engaging in discussions with other parties that might offer higher value. This Proxy Statement defined Pershing
Square as the Requesting Shareholder, and requested negotiations with Valeant regarding Valeant’s offer.
108. In a May 19, 2014 letter from Ackman to Mr. Gallagher, Ackman wrote, (1) “I find it inappropriate that Allergan’s lead
independent director was unwilling to speak to a shareholder without management present”; (2) “Mr. Pyott has also apparently
criticized Pershing Square, explaining that our views should not be considered, as we are somehow conflicted because of our
relationship with Valeant. To set the record straight, Pershing Square is Allergan’s largest shareholder with nearly 10% of the
common stock of the company . . . . We are interested only in maximizing the value of our investment in Allergan”; (3) “Based
on conversations we have had with other Allergan shareholders . . ., we believe that the majority of Allergan shareholders are
interested in a potential business combination with Valeant . . . . [I]t is rare that a shareholder is willing to candidly share its
views with a Chairman/CEO who will likely lose his job as a result of a proposed transaction . . . .”
109. On July 16, 2014, Ackman wrote in a letter to Allergan’s Board of Directors that, if allegations of Valeant “malfeasance”
are true, “then as Allergan’s largest shareholder with a $5 billion investment we would of course strongly oppose a Valeant
transaction.” These are neither the words nor the actions of an actual bidder.
110. Ackman and his hedge fund are not shielded from liability simply because they called themselves “co-bidders”; they were
other persons who were prohibited from trading under Rule 14e-3(a).
111. At its core, Valeant’s and Pershing Square’s conduct constitutes an impermissible warehousing scheme. Valeant leaked its
nonpublic tender offer intentions to Pershing Square, prompting Pershing Square to purchase 9.7% of Allergan stock. Not only
did the leaked information procure significant profits for Pershing Square, but it also ensured a presumptively “friendly” stake
for Valeant once Valeant launched its tender offer.
Valeant Launches an Aggressive Takeover Campaign
112. On April 21, 2014, the last possible day permissible under the ten-day period prescribed by Section 13(d), 27 Valeant and
Pershing Square shocked the market when they each filed a Schedule 13D purporting to disclose the acquisition of Allergan
stock and Valeant’s attempt to take over Allergan.
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113. On April 22, 2014, immediately after announcing its intentions to the market for the first time, Valeant delivered to Allergan
a formal, unsolicited proposal and draft merger agreement at $48.30 in cash and .83 of Valeant stock per Allergan share.
114. While Valeant initially tried to characterize its takeover as a “merger” to try to skirt the federal securities regulations
triggered by a tender offer, its plan from the very beginning was to launch a tender offer. Indeed, Valeant’s aggressive and
hostile tactics from the outset constituted a de facto tender offer in everything but the actual name. When Allergan did not
immediately agree to negotiate with Defendants, Valeant sought, with Ackman’s help, to persuade stockholders that a deal was
“inevitable.” 28
115. Meanwhile, Ackman openly bragged about how he was able to make this unprecedented gain without, in his view,
technically violating the insider trading rules. At a lunch hosted by Valeant, Ackman and Pearson “acknowledged that there
may be some questions around how Pershing Square/Bill Ackman accumulated AGN shares ahead of the takeout offer being
announced publicly, but they stressed everything they have done is completely legal.” 29
116. Under the facade of pursuing a negotiated merger, Valeant launched an aggressive campaign, using the classic playbook
for hostile tender offers: an offensive public relations and media blitz, pre-packaged investor presentations trumpeting the
“synergies” of a combined company and the shortcomings of Allergan as a stand-alone company, concerted stockholder
outreach, and direct communications with Allergan employees and customers.
117. Valeant undertook an aggressive public relations campaign with financial analysts and the media. In all of its
communications, Valeant made clear that it intended to rely on its continued “slash and burn” strategy by making deep cost cuts
at Allergan’s headquarters, particularly in the area of research and development.
118. On April 28, 2014, Valeant hosted an analyst event to discuss its proposal to Allergan. At the event, Valeant emphasized
that the likelihood of another bidder emerging was low, that “[t]ime is of the essence,” 30 and that Allergan should not “take
more than about 30 days” to evaluate. 31
119. On a conference call with equity analysts on Thursday, May 8, 2014, Valeant CEO Pearson said that he and Valeant
CFO Howard Schiller had been traveling across the U.S. to meet with Allergan’s top stockholders, as well as Valeant’s top
stockholders. 32 Pearson stated: “We have been in New York, Baltimore, Boston, Los Angeles, San Francisco, Vancouver and
South Florida. So far, all of the feedback has been overwhelmingly positive.” 33 To the contrary, many Allergan stockholders
including Dan Davidowitz, Chief Investment Officer of Polen Capital Management LLC, stated in interviews that they did not
support Valeant’s bid. Allergan’s co-founder and former Chairman, Gavin S. Herbert, urged the company’s directors to reject
a buyout offer saying that Valeant’s slashing the research and development budget would “really kill this company . . . I am
very much against that.” 34
120. On May 8, 2014, Schiller warned of more aggressive measures, explaining that Valeant and Pershing Square would
request a stockholder list from Allergan in order to “commence a shareholder referendum that will determine that the Allergan
shareholders are supportive of Allergan’s Board of Directors engaging in negotiations with us in parallel with other efforts
they may be undertaking.” 35 Schiller also made clear that Valeant and Pershing Square were willing to bypass the Board of
Directors entirely, stating that “if necessary, we will also pursue holding a special meeting to remove some or all of the Allergan
board members.”
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121. Meanwhile, Ackman bragged that he was already up about 38% on his Allergan stake, less than one month after the unusual
deal became public. 36 The gains at the time added up to more than $1 billion in paper profits. 37
122. Throughout April and May, Valeant also undertook to communicate directly with Allergan’s customers and employees.
Among other tactics, Valeant management and other personnel:
a. Began representing to Allergan’s customers that the acquisition was a “done deal” and “we own them”;
b. Offered rebates on both Allergan and Valeant purchases;
c. Contacted Allergan sales representatives and welcomed them to Valeant;
d. Visited Allergan customers, announcing that they were Allergan’s new sales representatives;
e. Began telling Allergan customers that Allergan’s SkinMedica line was going to be divested; and
f. Sent a letter to Valeant’s customers discussing its merger proposal and plans for the joint company going forward.
Valeant Formally Launches a Proxy Contest and Hostile Exchange Offer
123. Two weeks after Allergan’s Board of Directors “unanimously determined that Valeant’s unsolicited proposal substantially
undervalues Allergan,” on May 28, 2014, Valeant increased its offer by $10 cash per share.
124. Before the Allergan Board of Directors had the chance to consider the revised offer, Valeant raised its offer again on May
30, 2014, by increasing the cash portion of its bid to $72.00 per share (the “Revised Proposal”).
125. As part of the Revised Proposal, Pershing Square agreed to forego all cash and accept 100% of its consideration in Valeant
stock using an exchange ratio determined based on the previous day’s closing stock prices of Allergan and Valeant. Pershing
Square would receive $20.75 per share less consideration than other Allergan stockholders, providing substantially more value
and cash for other Allergan stockholders. 38 Pershing Square was again stepping in to help finance a deal that Valeant could
not afford.
126. In a presentation to investors on June 2, 2014, Valeant abandoned the pretense of “negotiations” with the Board of Directors
and reaffirmed that it was “preparing to launch an exchange offer.”
127. Allergan’s Board of Directors unanimously rejected the Revised Proposal on June 10, 2014, reiterating its belief that
the increased proposal still “substantially undervalues Allergan, creates significant risks and uncertainties for Allergan’s
stockholders and does not reflect the Company’s financial strength, future revenue and earnings growth or industry-leading
R&D.”
128. On June 18, 2014, Valeant filed a Registration Statement on Form S-4 (the “S-4”) and Schedule TO with the Commission,
finally commencing the tender offer that it had been planning for several months.
129. On July 11, 2014, Valeant and Pershing Square filed a definitive proxy statement with the Commission, soliciting proxies
to call the Special Meeting. Allergan filed a Definitive Proxy Statement and a Schedule 14D-9 in response to Valeant’s offer.
These filings defended Allergan’s position that Valeant’s offer was grossly inadequate.
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Material Misstatements and Omissions Regarding Defendants’ Relationship and Intentions
130. Section 13(d) requires any entity that directly or indirectly acquires beneficial ownership of more than 5% of a registered
class of an issuer’s equity securities to file a Schedule 13D disclosure statement with the SEC. The Schedule 13D must contain
the information specified in Section 13(d) and the Commission rules promulgated thereunder, including, among other things:
the number of shares beneficially owned; the source and amount of the funds to be used in the acquisition; information as to any
contracts, agreements, or understandings with any entity relating to the securities of the issuer; and the beneficial owner’s plans
for the issuer’s business and governance. Section 13(d) and Schedule 13D function together as key elements of the Williams
Act and provide public stockholders with early warning of a potential takeover.
131. Notably, Section 13(d) expressly requires the filer to disclose the “purpose” of its acquisition of the issuer’s securities, and
“any plans or proposals” the filer “may have which relate to or would result in . . . [a]n extraordinary corporate transaction.” 39
132. Valeant’s and Pershing Square’s Schedule 13D filings on April 21, 2014 — purporting to disclose the acquisition of Allergan
stock and Valeant’s attempt to take over Allergan — do not satisfy Section 13(d)’s requirements. The Schedule 13D filed by
Pershing Square on April 21, 2014, stated that Pershing Square “intend[s] to engage in discussions” with Allergan’s Board
of Directors, 40 and the Schedule 13D filed by Valeant on April 21, 2014, stated that Valeant “currently intends to propose
a merger” in which Allergan’s stockholders would receive “a combination of cash and Valeant common shares,” and that it
expected the cash component to total approximately $15 billion. 41
133. These characterizations of Defendants’ intentions at that time are belied by later admissions. When investors asked Ackman
and Pearson on April 22, 2014, whether an exchange offer was coming, Ackman admitted, “I think that anyone in the room who
talks to a good M&A attorney will understand, you’ll read the documents on the company, there are opportunities to call special
meetings. There are opportunities for investors to launch various kinds of offers. You should assume that we’re familiar with
all these various techniques.” 42
134. Reflecting back on the announced offer in April, on June 17, 2014, Pearson admitted that a tender offer was part of Valeant’s
ultimate plan, stating: “On April 22nd, we announced our offer for Allergan. We suspected at the time it would ultimately have
to go directly to Allergan shareholders. We were correct.” 43 Having already taken substantial steps towards a tender offer
at that time, Valeant filed a Schedule 13D that was deficient in that it did not accurately convey its plans and proposals for
Allergan pursuant to the requirements of Item 4.
135. In an apparent effort to remedy its deficient initial filing, Pershing Square first amended its Schedule 13D/A on July 17,
2014. Exhibits 99.14 and 99.15 to the Schedule 13D/A consisted of previously undisclosed share call option and share forward
master confirmations.
136. Pershing Square also subsequently amended Item 4 of its Schedule 13D on several occasions to reflect its attempts to cajole
Allergan’s Board of Directors to pursue a business combination with Valeant. 44 And, the Schedule 13D was repeatedly amended
to reflect the status of Valeant’s takeover attempt and the supporting proxy contest to remove Allergan’s Board of Directors and
pave the way for Valeant’s tender offer. None of these amendments disclosed the true nature of Pershing Square’s relationship
with Valeant, or its awareness of the potential liability for insider trading when it structured its Relationship Agreement with
Valeant.
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137. Pershing Square’s most recent amendment to its Schedule 13D on November 21, 2014, likewise does not correct these
disclosure deficiencies. 45 That amendment came in the wake of Allergan’s announcement, on November 17, that it had entered
into a merger agreement with Actavis, Pershing Square’s withdrawal the next day of its Special Meeting Proxy Statement, 46
and Valeant’s filing on November 19 of amendment number 6 to its Schedule TO withdrawing its tender offer. 47 It discloses
that Pershing Square sold almost 1,651,509 shares to split its profits with Valeant, per the terms of their Relationship Agreement.
Valeant made almost $400 million in profits — $350 million of which was a pure gain resulting from Defendants’ unlawful
insider trading scheme.
138. Although Valeant’s tender offer for Allergan stock has been withdrawn, Pershing Square remains the beneficial owner
of over 26 million Allergan shares. As with any Schedule 13D filer, Pershing Square has a duty to ensure that the Schedule
adequately discloses its intentions to stockholders.
139. Yet, Pershing Square’s most recently amended Schedule 13D remains operative and still omits key information including:
(1) Pershing Square’s current plans with respect to Allergan; (2) its previous plan to label itself a “co-bidder” with Valeant in
the event of a Valeant tender offer (an attempt to avoid liability for insider trading); and (3) its potential 14e-3 liability and
awareness of that liability at the time it purchased Allergan stock. Allergan stockholders would find any information regarding
Pershing Square and Valeant’s scheme to defraud the market material to any decision to buy, sell, hold, or otherwise exercise
rights attendant to those shares.
140. Moreover, the Pershing Defendants have publicly stated in live SEC filings that they may seek major changes to Allergan’s
business, including “actions which may impede the acquisition of the issuer by any person.” 48 Pershing Square has never
revoked the statement in its initial April 21, 2014 Schedule 13D that it “may also take one or more of the actions described
in subsections (a) through (j) of Item 4 of Schedule 13D.” 49 To this day, according to its 13D statements, Pershing Square
reserves the right to push for a major change in Allergan’s Board of Directors or corporate structure.
FIRST CLAIM FOR RELIEF
Section 14(e) of the Exchange Act and the Rules Thereunder
Against All Defendants
141. Plaintiffs incorporate by reference and reallege each and every allegation contained above, as though fully set forth herein.
142. Defendants have engaged in fraudulent, deceptive and manipulative acts in connection with taking substantial steps towards
a tender offer, including trading on material nonpublic information.
143. Rule 14e-3(a) provides that once an offering person has “taken a substantial step or steps to commence a tender offer,”
then “it shall constitute a fraudulent, deceptive or manipulative act or practice” for any person who is in possession of material
nonpublic information relating to the tender offer (other than the offering person) to acquire shares in the target.
144. Rule 14e-3(d) provides that under such circumstances, it shall be unlawful for an offering person “to communicate material,
nonpublic information relating to a tender offer to any other person under circumstances in which it is reasonably foreseeable
that such communication is likely to result in a violation of this section.”
145. The purpose of the rule is to prevent parties with nonpublic information that a tender offer is going to be commenced at a
premium price from transacting with investors who do not have such information — unless they disclose that information first.
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146. After Valeant took substantial steps to commence a tender offer for Allergan shares, the Pershing Defendants acquired
shares of Allergan stock while in possession of material nonpublic information relating to that tender offer. In light of the
Relationship Agreement, it was reasonably foreseeable that Valeant’s communication would result in a violation of Rule 14e-3.
147. The Pershing Defendants knew or had reason to know that the information was nonpublic, and that the information was
provided by Valeant, the bidder.
148. Section 14(e) provides: “It shall be unlawful for any person to make any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made, in the light of the circumstances under which they
are made, not misleading, or to engage in any fraudulent, deceptive, or manipulative acts or practices, in connection with any
tender offer . . . .”
149. Defendants violated Section 14(e) and Rule 14e-3 thereunder by failing to disclose material information regarding Valeant’s
tender offer before purchasing Allergan stock. Valeant further violated Rule 14(e) and Rule 14e-3 thereunder by communicating
material, nonpublic information relating to its tender offer to the Pershing Defendants under circumstances in which it reasonably
foreseeable that such communication was likely to result in a violation of Section 14(e).
150. Defendants had the motive and opportunity to commit fraud. Valeant was motivated to facilitate Pershing Square’s purchase
of a large stake in Allergan, and thereby ensure critical financing and friendly backing in support of its hostile takeover attempt.
Pershing Square was motivated to purchase its stake in Allergan by trading with Allergan stockholders on the basis of material,
nonpublic information, and thereby reap the enormous financial gains accruing to it from this information imbalance. Defendants
made false and misleading statements to the market in an attempt to hide the details of their conduct.
151. Defendants’ fraudulent, deceptive, and manipulative acts violated their respective obligations under Section 14(e) of
the Williams Act and the rules adopted thereunder, including, at minimum: 14e-3(a) (prohibiting the Pershing Defendants
from trading on nonpublic material information in connection with a tender offer); and 14e-3(d) (prohibiting Valeant from
communicating nonpublic material information in connection with a tender offer).
152. Defendants’ violations of Section 14(e) of the Williams Act, and the rules adopted thereunder, have caused, and continue
to cause, Allergan stockholders irreparable harm that cannot be adequately compensated in monetary damages, and for which
preliminary and permanent injunctive relief is appropriate.
153. Defendants’ violations of 14(e) of the Williams Act, and the rules adopted thereunder, have caused and continue to cause,
Plaintiff Parschauer damages because she did not have the information required to be disclosed under Rule 14e-3 and therefore
sold Allergan stock for an unfair price.
SECOND CLAIM FOR RELIEF
Section 13(d) of the Exchange Act and Schedule 13D Thereunder
Against the Pershing Defendants
154. Plaintiffs incorporate by reference and reallege each and every allegation contained above, as though fully set forth herein.
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155. Section 13(d) and the Commission rules promulgated thereunder require that Schedule 13D disclosure statements
adequately disclose the “purpose” of its acquisition of the issuer’s securities, and “any plans or proposals” the filer “may have
which relate to or would result in . . . [a]n extraordinary corporate transaction.” 17 C.F.R. § 240.13d-101, Item 4.
156. The Pershing Defendants’ November 21, 2014 Schedule 13D is materially false and misleading because it omits key
information including: (1) Pershing Square’s current plans with respect to Allergan; (2) its plan to label itself a “co-bidder” with
Valeant in the event of a Valeant tender offer; and (3) its potential 14e-3 liability and awareness of that liability at the time it
purchased Allergan stock.
157. As a result of the Pershing Defendants’ failure to file an accurate Schedule 13D, the Pershing Defendants violated and
remain in violation of Section 13(d) of the Exchange Act and Rules 13d-1 and 13d-2 thereunder.
158. The omissions in the Pershing Defendants’ November 21, 2014 Schedule 13D concern information material to Allergan
stockholders and to the investing public.
159. Allergan’s stockholders and the investing public will be irreparably harmed in the absence of the declaratory and equitable
relief as prayed for herein.
THIRD CLAIM FOR RELIEF
Section 20A of the Exchange Act
By Plaintiff Parschauer Against the Pershing Defendants
160. Plaintiffs incorporate by reference and reallege each and every allegation contained above, as though fully set forth herein.
161. As detailed herein, the Pershing Defendants were in possession of material, nonpublic information concerning Allergan,
and traded on the basis of that information to obtain initial profits of over $1 billion and current profits of over $2.5 billion.
162. The Pershing Defendants’ trades were made contemporaneously with Plaintiff Parschauer’s trades.
163. Plaintiff Parschauer suffered damages as a result of these trades because she did not have the information required to be
disclosed under Rule 14e-3 and therefore sold for an unfair price and did not receive the benefit of the premium that followed
once the Pershing Defendants’ material nonpublic information was released to the market.
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs pray for relief as follows:
A. For an order declaring that the Pershing Defendants violated Rule 14e-3(a) by acquiring shares of Allergan while in
possession of material nonpublic information relating to Valeant’s tender offer.
B. For an order declaring that Valeant violated Rule 14e-3(d) by communicating material, nonpublic information relating to
Valeant’s tender offer to Pershing Square.
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C. For an order requiring the Pershing Defendants to rescind their purchases of any Allergan securities they acquired unlawfully,
either (i) prior to filing complete and accurate Schedule 13D disclosures, or (ii) while in possession of material nonpublic
information in violation of Rule 14e-3.
D. For an order declaring that Defendants failed to file complete and accurate disclosures in violation of Section 13(d) of the
Exchange Act.
E. For an order requiring that Defendants correct by public means their material misstatements and omissions and to file with
the Commission accurate disclosures required by Section 13(d) of the Exchange Act.
F. For such preliminary and/or permanent injunctive relief as may be necessary.
G. For an order awarding Ms. Parschauer damages under Sections 14(e) and 20A of the Exchange Act.
H. For an order awarding Plaintiffs their costs and disbursements in this action, including reasonable attorneys’ and experts’ fees.
I. For an order awarding Plaintiffs such other and further relief as the Court may deem just and proper.
Dated: January 26, 2015
LATHAM & WATKINS LLP
By: /s/Peter A. Wald
Peter A. Wald
LATHAM & WATKINS LLP
Peter A. Wald (Bar No. 85705)
peter.wald@lw.com
505 Montgomery Street, Suite 2000
San Francisco, CA 94111-6538
LATHAM & WATKINS LLP
Michele D. Johnson (Bar No. 198298)
michele.johnson@lw.com
650 Town Center Drive, 20th Fl.
Costa Mesa, California 92626
LATHAM & WATKINS LLP
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Blair Connelly (Bar No. 174460)
blair.connelly@lw.com
885 Third Avenue
New York, NY 10022-4834
Telephone: +1.212.906.1658
LATHAM & WATKINS LLP
Colleen C. Smith (Bar No. 231216)
colleen.smith@lw.com
12670 High Bluff Drive
San Diego, California 92130
Telephone: +1.858.523.5400
LATHAM & WATKINS LLP
Matthew D. Harrison
(Bar No. 210981)
matt.harrison@lw.com
505 Montgomery Street, Suite 2000
San Francisco, CA 94111-6538
WACHTELL LIPTON ROSEN & KATZ LLP
William D. Savitt (pro hac vice)
Bradley R. Wilson (pro hac vice)
51 W. 52nd Street
New York, NY 10019
Attorneys for Plaintiffs
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ALLERGAN, INC. and KARAH H. PARSCHAUER.
Footnotes
1
See 17 C.F.R. 240.13d-1.
2
A true and correct copy of Pershing Square’s Schedule 13D filed on April 21, 2014, is attached hereto as Exhibit A.
3
Pershing Square filed an amended Proxy Statement on September 24, 2014, and again on November 14, 2014. Pershing
Square withdrew the Proxy Statement in a Schedule RW filed on November 18, 2014. See infra ¶ 26.
4
In its amended filing on July 23, 2014, Valeant belatedly attempted to label Pershing Square a “co-bidder” for Allergan.
Notwithstanding that labeling effort, the only party that was offering to acquire Allergan shares was Valeant.
5
Allergan, Inc., Form RW (filed by Pershing Square Capital Management, L.P.) (Nov. 18, 2014), available at http://
www.sec.gov/Archives/edgar/data/850693/000119312514416965/d823624drw.htm.
6
Id.
7
Allergan, Inc., Amendment to Schedule TO (filed by Valeant Pharmaceuticals International, Inc.) (Nov. 19, 2014),
available at https:// www.sec.gov/Archives/edgar/data/850693/000119312514418566/d824480dsctota.htm.
8
Allergan, Inc., General Statement of Acquisition of Beneficial Ownership (Schedule 13D) (filed by
Valeant Pharmaceuticals International, Inc.) (Nov. 20, 2014), available at http:// www.sec.gov/Archives/edgar/
data/850693/000119312514420199/d825077dsc13da.htm.
9
A true and correct copy of Amendment No. 14 to Pershing Square’s Schedule 13D filed on November 21, 2014 is
attached hereto as Exhibit B.
10
As of the filing of this complaint, Pershing Square has amended its Schedule 13D 14 times. These amendments generally
supplement its initial filing by disclosing later events, including correspondence with Allergan’s Board of Directors
and management, disclosure of Valeant’s proposals for a business combination, and actions taken in waging the proxy
contest in support of Valeant’s tender offer. Yet, the initial disclosures made about Pershing Square’s intentions with
respect to Allergan have not been removed or altered. Its initial Schedule 13D, along with these amendments, comprise
the operative disclosures that must satisfy Pershing Square’s obligations under Section 13(d).
11
Allergan at a Glance, Allergan, http:// www.allergan.com/investors/index.htm (last visited January 23, 2015).
12
Allergan 2013 Annual Report at 16, available at http:// agn.client.shareholder.com/financials.cfm.
13
Valeant Acquisition FAQs, http://www.valeant.com/about/acquisition-faqs (last visited January 23, 2015).
14
Valeant April 22, 2014 News Release, available at http:// ir.valeant.com/investor-relations/news-releases/news-releasedetails/2014/Valeant-Proposes-to-Combine-With-Allergan-for-4830-in-Cash-and-083-Shares-of-Valeant-Stock-forEach-Allergan-Share/default.aspx.
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15
Dana Mattioli et al., Allergan Pursuer Valeant: A Drug Maker with Little Patience for Science, Wall St. J. (Apr. 22,
2014, 7:42 PM), available at http://online.wsj.com/news/articles/SB10001424052702304734304579517293429546.
16
Patrick Burke, Valeant Business Model Too Good to be True, Rochester Democrat & Chronicle (June 6, 2014) (emphasis
added).
17
CNBC Fast Money Halftime Report: Jim Chanos on Shorting Valeant (May 15, 2014).
18
Id.
19
Sonali Basak & David Welch, Morgan Stanley’s Valeant E-mails Call Client a ‘House of Cards,’ Bloomberg (June
16, 2014, 7:01 PM), available at http://www.bloomberg.com/news/2014-06-16/morgan-stanley-s-valeant-e-mails-callclient-a-house-of-cards-.html.
20
Chris Serres, William Ackman: Targeting Target, Star Tribune (Jan. 13, 2008, 12:15 AM), available at http://
www.startribune.com/business/13715691.html.
21
Liz Hoffman, Ackman Pares Down $1B Herbalife Bet, Books Losses, Law360 (Oct. 3, 2013, 10:54 AM), available at
http:// www.law360.com/articles/477827/ackman-pares-down-1b-herbalife-bet-books-losses.
22
The confidentiality agreement was later amended on February 20, 2014.
23
Allergan, Inc., Form 425 (filed by Valeant Pharmaceuticals International, Inc.) (June 17, 2014), available at http://
www.sec.gov/Archives/edgar/data/850693/000119312514239987/d745316d425.htm.
24
45 Fed. Reg. 60,410, 60,412 (Sept. 12, 1980).
25
See Tender Offers, Exchange Act Release No. 17120, 1980 WL 20869, at 4 (Sept. 4, 1980) (footnotes omitted).
26
See Matt Levine, Predatory Traders Front-Ran Bill Ackman’s Botox Buy, BloombergView (Apr. 23, 2014), available at
http:// www.bloombergview.com/articles/2014-04-23/predatory-traders-front-ran-bill-ackman-s-botox-buy).
27
Under Section 13(d), the Schedule 13D must be filed with the Commission within ten days of the date that the filer
crosses the 5% threshold (a time period that was put in place in 1968, long before technological advances made rapid
accumulations much easier).
28
Allergan, Inc., Form 425 (filed by Valeant Pharmaceuticals International, Inc.) (June 3, 2014), available at http://
www.sec.gov/Archives/edgar/data/850693/000119312514222737/d737699d425.htm (Ackman: “[O]ur point of view is
at this point we think Allergan’s board and management are delaying the inevitable.”).
29
Credit Suisse, Allergan Inc.: Takeaways from VRX Lunch: Management Provides Compelling Points for AGN Takeout
(Apr. 27, 2014), at 16.
30
Canaccord, VRX Remains Focused on the Goal (Apr. 28, 2014), at 9.
31
Credit Suisse, supra note 29.
32
Joseph Walker, Valeant Steps Up Hostile Takeover Campaign Against Allergan, Wall St. J. (May 8, 2014, 3:20 PM),
available at http:// online.wsj.com/news/articles/SB10001424052702304885404579549373824884.
33
Id.
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34
Stuart Pfeifer, Allergan Co-Founder Speaks Out Against Valeant Takeover, L.A. Times (May 6, 2014, 6:57 PM),
available at http:// www.latimes.com/business/la-fi-allergan-meeting-20140507-story.html.
35
Walker, supra note 32.
36
Rob Copeland, Ackman Gains 38% on Valeant Deal to Buy Allergan, Wall St. J. (May 9, 2014, 5:42 PM), available at
http:// online.wsj.com/news/articles/SB10001424052702304431104579552311792829.
37
Id.
38
Pershing Square was able to make this election because it had already obtained a paper profit of approximately $1
billion through its rapid accumulation program while in possession of material, nonpublic information. Pershing Square
is effectively using those ill-gotten gains to help finance Valeant’s takeover effort.
39
17 C.F.R. § 240.13d-101, Item 4.
40
Allergan, Inc., General Statement of Acquisition of Beneficial Ownership (Schedule 13D) (filed by
Pershing Square Capital Management, L.P.) (Apr. 21, 2014), available at http:// www.sec.gov/Archives/edgar/
data/850693/000119312514150906/d711603dsc13d.htm.
41
Allergan, Inc., General Statement of Acquisition of Beneficial Ownership (Schedule 13D) (filed by
Valeant Pharmaceuticals International, Inc.) (Apr. 21, 2014), available at http:// www.sec.gov/Archives/edgar/
data/850693/000119312514150941/d715509dsc13d.htm.
42
Allergan Inc., Form 425 (filed by Valeant Pharmaceuticals International, Inc.) (Apr. 23, 2014), available at https://
www.sec.gov/Archives/edgar/data/885590/000119312514155048/d713979d425.htm (emphasis added).
43
Allergan, Inc., Form 425 (filed by Valeant Pharmaceuticals International, Inc.) (June 18, 2014), available at https://
www.sec.gov/Archives/edgar/data/850693/000119312514239987/d745316d425.htm (emphasis added).
44
Pershing Square amended its April 21, 2014 Schedule 13D multiple times. Pershing Square most recently amended its
Schedule 13D on November 21, 2014. See infra ¶¶ 28.
45
See Exhibit B.
46
Allergan, Inc., Withdrawal of Definitive Proxy Statement, (filed by Pershing Square Capital Management, L.P.) (Nov.
18, 2014), available at http:// www.sec.gov/Archives/edgar/data/850693/000119312514416965/d823624drw.htm.
47
Allergan, Inc., Amendment to Schedule TO (filed by Valeant Pharmaceuticals International, Inc.) (Nov. 19, 2014, 2014),
available at https:// www.sec.gov/Archives/edgar/data/850693/000119312514418566/d824480dsctota.htm.
48
See 17 C.F.R. 13d-101, as referenced in Pershing Square’s April 21, 2014 Schedule 13D (Exhibit A).
49
See Exhibit A. Subsections (a) through (j) of Item 4 of Schedule 13D include: (b) “an extraordinary corporate transaction,
such as a merger”; (d) “any change in the present board of directors or management of the issuer including any plans or
proposals to change the number or term of directors or to fill any existing vacancies on the board”; (f) “any other material
change in the issuer’s business or corporate structure”; or (g) “changes in the issuer’s charter, bylaws or instruments
corresponding thereto or other actions which may impede the acquisition of control of the issuer by any person.” 17
C.F.R. 13d-101.
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End of Document
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Capstone Legal Analysis Paper
Objective: This assignment asks you to objectively evaluate two sides of an argument and
apply the law. This paper includes a research component. The ability to set forth facts on
multiple sides of an argument (objectivity) and then make a persuasive case in support of
one position (subjectivity) using the law is a skill you’re likely to use whether you pursue a
career in law (think about a lawyer advocating for a client or a judge writing a legal opinion
to decide a legal dispute) or a career in business (think about a business person urging the
adoption of a new company policy or advocating for the development of new product or
service line).
Assignment: Draft a paper between 8-10 pages (plus citations), typed, 12-point Times New
Roman, double-spaced. You must cite external resources and reference materials used. Your
citation pages do not count toward the page minimum. You must address Parts 1, 2, and 3
found in the “Format and Paper Components” below. To help you with this assignment,
please review the Background before moving on.
Background: On Monday, April 21, 2014 David Pyott, then president and CEO of Allergan,
saw Bill Ackman, billionaire hedge fund manager and activist investor of Pershing Square, on
CNBC. Bill Ackman stated he used the fund he founded, Pershing Square Capital
Management, to quietly acquire 9.7 percent of Allergan’s shares. As a result, Ackman had
become the company’s single largest shareholder. And now he was on TV explaining why
Allergan should welcome being acquired by Valeant Pharmaceuticals International (NYSE:
VRX). It was the beginning of what the CEO of Allergan, Pyott, would later would refer to as
“seven-and-a-half months of total war.”
Founded in 1950 to sell eye care products, Allergan later expanded its pharmaceutical
offering of Botox in 2002. In 2013, Botox represented $1.8 billion of Allergan’s $6.3 billion
sales total. Allergan’s second most important product, generating $940 million in 2013 was
Restasis eye drops, the world’s leading therapy for chronic eye dryness.
Valeant rose to prominence in the 1990s selling antiviral and antibacterial drugs to some 100
countries. Rather than developing new products internally like Allergan, Valeant focused on
buying other firms for established products and then cutting the firms’ administrative and
R&D functions. By mid-2014, Valeant’s annual revenues had risen to $5.8 billion.
Pershing Square Capital Management was founded in 2004 by William Ackman with $50
million in seed capital. By 2014, Pershing Square managed nearly $12 million dollars of
investor money, including some 70 pension funds, endowments, foundations, and family
offices.
The alliance between Valeant and Pershing Square was developed during a January 2014
meeting between the CEO of Valeant and an employee of Pershing Square Bill Doyle.
Subsequently, on February 6, Valeant and Pershing Square discussed by phone a novel
arrangement by which Pershing Square could develop a strategy for purchasing equity in
companies that Valeant wished to acquire and for which it wanted Pershing Square’s
collaboration. Hedge fund share purchases made explicitly supporting an operating
company’s acquisition program were previously unknown. The two companies signed a
confidentiality agreement, after which Pershing Square told Ackman or Allergan of its
interest in buying Allergan. Valeant and Pershing Square agreed that Valeant and Pershing
Square would buy Allergan shares and vote all its shares in support of Valeant’s effort to buy
Allergan. On April 11, after purchasing shares under the name PS Fund, Pershing Square’s
holding exceeded 5% of Allegan’s shares. By April 21, when Valeant reaches out to Allergan
to discuss a possible purchase of Allergan, Pershing Square had acquired control of 9.7% of
Allergan stock for about $3.6 billion.
Format and Paper Components:
Part 1- Background (1-2 pages): Research and summarize the events that occurred between
January 2014 and August 1, 2014 that led to Allergan suing Valeant and Pershing Square for
insider trading. There is a lot of media coverage available, feel free to utilize this coverage to
inform your summary. Make sure you cite all sources used!
Part 2- Legal Argument (3-5 pages): Using the First Amended Complaint found on Canvas,
review Allergan’s allegations and Section 14e of the Securities and Exchange Act, specifically
Rule 14e-3(a), and analyze using the allegations in the Complaint, the Background above and
your research in Part 1 whether Valeant violated Rule 14e-3(a). Defend your answer.
For reference: Section 14(e) prohibits “fraudulent, deceptive, or manipulative acts or
practices in connection with any tender offer.” Under Rule 14e–3(a), once an “offering
person” “has taken a substantial step or steps to commence … a tender offer,” “any other
person who is in possession of material information relating to such tender offer” that he
knows or has reason to know is nonpublic and that he received directly or indirectly from
the offering person must either abstain from trading or disclose the information to the
public before trading. 17 C.F.R. § 240.14e–3(a). Relatedly, Rule 14e–3(d) makes it unlawful
for an “offering person” to communicate “material, nonpublic information relating to a
tender offer to any other person under circumstances in which it is reasonably foreseeable
that such communication is likely to result in a violation of this section.” 17 C.F.R. 240.14e–
3(d). You can find the statute here: https://www.ecfr.gov/current/title17/chapter-II/part240/subpart-A/subject-group-ECFR465b90927e2fdb3/section240.14e-3.
Part 3- Evaluation (2-4 pages): What do you think of Valeant’s tactics here and Allergan’s
response? Good business? What were the risks each side took, and what was the outcome?
NOTE: This is your capstone paper. You should observe and put into practice basic writing
skills: spelling, punctuation, grammar, and formatting.
Citations: At the end of the paper, include your table of cited references and resources. Your
citation pages do not count toward your minimum page requirement. WIKIPEDIA is not an
acceptable citation. Your arguments are only as strong as the veracity and credibility of your
source material. Resource materials can include, among other materials, court cases, media
coverage citing court cases, media articles, scholarly articles, materials from trade and
industry associations, and interviews. Use a standard citation format that you are
comfortable with, including for sources from the internet, and apply your chosen format
consistently.