Activist investor William Ackman said on Monday that Allergan Inc's (AGN.N) chief executive has a "disabling" conflict of interest because a takeover of his company by Valeant Pharmaceuticals International Inc (VRX.TO) would likely mean the loss of his job.
Ackman and Montreal-based Valeant launched a $47 billion takeover of the company on April 22, but Allergan rejected the offer on May 12 and has not budged since. Allergan Chief Executive David Pyott is urging shareholders to let the company stand alone.
Valeant, however, said last week it intended to sweeten its offer and would discuss the matter in a May 28 webcast.
Ackman, who controls a nearly 10 percent stake in Allergan as the head of Pershing Square Capital Management, criticized Allergan's position in a May 19 letter to its lead director, Michael Gallagher.
The activist investor said Allergan's board of directors needed to create a subcommittee to communicate directly with shareholders, and he complained that his attempts to speak to the company's top director without management present were rejected.
"The board's apparent unwillingness to speak or meet with us and your unwillingness to speak with the company's largest shareholder without Mr. Pyott present are both material failures of Allergan's corporate governance at a critical time for Allergan and its shareholders," he said in the letter.
"CEO David Pyott has a disabling conflict of interest that arises from the fact that he will lose his leadership role at the company and likely his job as a result of the transaction," Ackman said in the letter.
Gallagher, in a letter of response to Ackman, took exception to his "statements and tactics, including your blatant attempt to isolate David Pyott, who has created enormous value for the Allergan stockholders and who is keenly focused on the best interests of all stockholders."
Gallagher's letter, which appeared in a regulatory filing, went on to say: "The entire board of directors, including David Pyott, is open to all options that will significantly enhance the long-term value of Allergan for all stockholders."
Allergan, earlier on Monday reiterated that the takeover offer was too risky for shareholders and it defended its communications with shareholders.
"Allergan maintains an open line of communication with stockholders and welcomes their feedback. However, as a co-bidder with Valeant Pharmaceuticals, we believe that Mr. Ackman's views and interests are not aligned with those of other Allergan stockholders," Allergan spokeswoman Bonnie Jacobs said in a statement.
Ackman's letter is his latest effort to try to gain shareholder support for the deal. He said last week he would call an unofficial Allergan shareholder meeting and a vote on support for the deal.
"To me the letter is a very old school public pressure type of approach," BMO Capital Markets analyst David Maris said of Ackman's approach. "Why would Allergan agree to any further discussions when Valeant has already said they are going to come out with a new bid on the 28th?"
Ackman's letter was disclosed in a regulatory filing with the Securities and Exchange Commission.
Valeant shares closed up 0.5 percent at $127.21 on the New York Stock Exchange, while those of Allergan closed down 0.2 percent at $159.79, also on the NYSE.
(Reporting by Caroline Humer and Bill Berkrot; Editing by Sofina Mirza-Reid, Paul Simao and Steve Orlofsky)