Valeant, Ackman lose bid to throw out insider trading claims in Allergan case
Activist investor Bill Ackman and his estranged former collaborator in a 2014 hostile takeover bid for Botox-maker Allergan Inc. will likely face a jury trial next month over claims they engaged in insider trading.
U.S. District Judge David Carter issued a tentative ruling at a hearing Friday, denying a request by Ackman and Valeant Pharmaceuticals International Inc. to throw out the allegations by Allergan shareholders. They claim they were tricked when Ackman bought their shares in the secret knowledge Valeant was planning a hostile bid.
The case turns on whether Valeant and Ackman’s Pershing Square Capital Management were planning as early as February 2014 to take their offer directly to Allergan’s shareholders rather than to pursue a negotiated merger with Allergan’s management. It also depends on whether Pershing Square was really trying to buy Allergan instead of just helping to facilitate Valeant’s bid.
The hearing in Santa Ana, Calif., on the parties’ motions for summary judgment is ongoing and the judge may still change his mind in his final ruling. Even if the case proceeds to trial, the judge’s decision at this stage can help both sides evaluate their positions and provide a foundation for a negotiated settlement. The vast majority of shareholder lawsuits are settled before trial.
A spokesman for Pershing Square declined to comment. A spokeswoman for Valeant said that while there’s been no final ruling on any issue, the company has always anticipated the case may proceed to trial and looks forward to one on the merits of the case.
Based on comments from Valeant lawyer John Hueston during the hearing, the judge seems to be siding with the Allergan shareholders on the question whether Ackman and Valeant took “substantial steps” toward a tender offer, a necessary condition for illegal insider trading, before Ackman started quietly acquiring Allergan shares in late February 2014.
If so, that would mean that the judge may find Ackman and Valeant are liable for insider trading as a matter of law and the jury trial will focus only on the amount of damages they owe the Allergan shareholders.
Hueston tried to persuade Carter to let a jury decide whether Ackman and Valeant were working on a tender offer rather than a merger of equals from the start of their partnership.
“Let the argument proceed before a jury and have a fair fight there,” Hueston said to the judge.
The judge told the lawyers that the issue of “substantial steps” is probably the most difficult one he’s dealing with in the case. He said he drafted another ruling in his chambers that reflects the opposite conclusion of the tentative decision he issued at the start of the hearing.
If the judge sticks with that tentative ruling, it means that Ackman and Valeant will have to prolong their strained relationship in front of a jury. The partnership initially yielded a paper profit of about US$2.3 billion on the Allergan investment. But Pershing Square lost US$4.2 billion on its subsequent investment in Valeant, and Ackman fell out with the Canadian drugmaker’s former chief executive, Mike Pearson.
“I attribute the loss to a series of decisions that were made largely in 2015,” Ackman said in a March deposition filed in court. “And I don’t think Mike used good judgment in making those decisions. And so my confidence in him as a CEO, you know, was clearly lost.”