UPDATE 1-Allergan shareholder Ackman warns against pursuing deals beyond Valeant

Mon May 5, 2014 2:50pm EDT

(Adds details from Ackman letter)

May 5 (Reuters) - Activist investor William Ackman, Allergan Inc's largest shareholder, has cautioned the company against pursuing any alternative deal that did not offer a better value than Valeant Pharmaceuticals International Inc's $47 billion bid.

Valeant teamed up with Ackman last month to make an unsolicited offer for Allergan.

Allergan was preparing to approach Shire Plc about a potential takeover, even though the Irish drugmaker rebuffed a previous overture, Reuters reported last week.

"Even if Allergan were able to identify a transaction that offers a higher cash value than the estimated value of the Valeant proposal at the time of transaction closure, we do not believe such a cash transaction would be necessarily superior to Valeant's stock and cash offer," Ackman said Monday in a letter to Michael Gallagher, lead director of Allergan.

Shareholders might prefer to own stock in the combined enterprise, said Ackman, one of the hedge fund industry's most widely watched investors. Ackman's Pershing Square Capital Management has accumulated 9.7 percent of Allergan's common stock.

Ackman in the letter said it was his understanding that Allergan has approached alternative potential combination partners but has not contacted Valeant.

He urged the Botox maker to begin discussions with Valeant soon. The list of global pharmaceutical companies with the financial capacity to buy Allergan is limited, he warned.

"Today, Allergan is in a good position to negotiate with Valeant. This many not always be the case," Ackman said.

(Reporting by Susan Kelly in Chicago; Editing by Cynthia Osterman)

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