| NEW YORK, April 22
NEW YORK, April 22 William Ackman's $47 billion
joint bid with Valeant Pharmaceuticals International Inc
to buy Botox maker Allergan Inc may become a
model for future deals, rival fund managers said.
The unsolicited bid, the plans for which were revealed late
on Monday, was unusual for a so-called activist investor such as
Ackman. Usually, large acquisitions are the realm of private
equity investors and corporations, not activist shareholders.
Ackman, who runs the $13 billion Pershing Square Capital
Management hedge fund, typically first buys a stake in a company
and then agitates for change, sometimes leading to a sale. By
having a bidder lined up in Valeant, Ackman essentially skipped
that step, speeding the deal up and making his returns more
He already has a massive paper profit on his 9.7 percent
stake in Allergan, built over February and March. Allergan's
shares rose more than 15 percent on Tuesday.
At the Active-Passive Investor Summit, an industry
conference in New York on Tuesday, fund managers and investors
said they expected more activists and companies to explore this
route, and it could help speed up the pace of merger and
acquisition activity in the process.
"This is absolutely something we will see more of," said
James Mitarotonda, founder of activist hedge fund Barington
Capital, speaking on the sidelines of the conference.
Investors in Pershing Square funds said it also comes with
built-in protections that would not be there in a normal
activist investment. A deal could boost Allergan and Valeant
shares. And even if it did not happen but Allergan convinced
shareholders it can grow more effectively alone, Pershing Square
would still see its investment grow.
Although other activists have done such deals in the past,
the Valeant-Ackman pairing was getting more attention because of
its size and because of Ackman's involvement, fund managers
Ackman is known for aggressive moves, a reputation cemented
by a win against railroad Canadian Pacific Railway Ltd,
where it added seven new members to the board in 2012 and almost
tripled its investment.
One lawyer who works for a rival hedge fund said previous
deals with similar structures have been of smaller, ranging from
$1 billion to $3 billion.
To be sure, some fund managers and investors also said that
in spite of the attention, it's not easy to pull off too many
It requires an investor with plenty of available cash - the
kind of money Ackman has - and it may not be a friction-free
endeavor in the long run. The deal may also not always be
beneficial to the acquirer, who would see the price rise as news
of the potential deal gets out in the market.
"You need the right conditions for an investor and a
corporate culture to take risks and identify value," said Bruce
Goldfarb, chief executive officer at proxy solicitor Okapi
Partners. Goldfarb said a good activist-company matchup might be
hard to find.
Erik Gordon, a professor of law and business at the
University of Michigan, said the unusual partnership could also
face challenges in the long run if their bid succeeds.
"Valeant will push for strategies and capital allocations
that create operating synergies and Ackman will push for
financial moves that quickly increase the value of the company,"
Gordon said. "The different pushes are likely to lead to
The joint bid came together after Valeant tried over the
past year to talk with Allergan about a deal that would have
would brought together the two mid-sized companies with
expertise in skin-care and eye-care products, but was spurned,
according to Jeffrey Ubben, chief executive of activist fund
ValueAct Capital, which has a seat on Valeant's board.
Ackman was introduced to Valeant CEO Michael Pearson by a
mutual acquaintance. In February, the two met and agreed to make
a joint bid for Allergan.
Under the terms, Ackman started buying up Allergan shares
and options through a special fund that Valeant and Pershing
jointly set up. He has also committed to hold Valeant shares for
a certain period if they succeed.
The position and their intention to make a joint bid for
Allergan were disclosed in a regulatory filing late on Monday.
The deal offers Ackman a new opportunity to use a cash
stockpile that has grown since he trimmed the fund's stakes in
bourbon-maker Beam Inc and exited General Growth
Properties Inc earlier this year.
It "is a potentially seminal moment for activism and
reflects the continued reduction of the stigma attached in some
quarters to activism," said Chris Young, a managing director at
(Reporting by Svea Herbst-Bayliss with additional reporting by
Nadia Damouni.; Editing by Richard Valdmanis and John Pickering)