Just days ahead of Bill Ackman’s call for a special meeting of Allergan shareholders that could lead to its takeover, the activist investor and his partner Valeant Pharmaceuticals are facing a civil probe over their pursuit of Allergan.
The Securities and Exchange Commission is looking into allegations first raised by Allergan that Ackman’s Pershing Square hedge fund and Valeant violated insider-trading laws in their effort to buy the maker of Botox. The inquiry, which is in the initial stages, was first reported by the Wall Street Journal.
Pershing Square took a 9.7 percent stake in Allergan in April and hooked up with Canadian drug company Valeant in what has turned into $53 billion hostile takeover offer for the Irvine, Calif., company.
The next step is a shareholder meeting Ackman is calling to oust six of Allergan’s nine directors, which would pave the way for Valeant’s offer to be accepted.
Neither the SEC inquiry nor a lawsuit filed by Allergan against Valeant, Ackman and Pershing Square two weeks ago is expected to stop that meeting from taking place.
Ackman’s fund is believed to have already lined up more than the 25 percent of shareholders required to hold the special meeting and will make it official within days.
Last week, proxy advisory firms Glass Lewis and ISS criticized Allergan’s corporate governance-practices and endorsed the shareholder meeting.
The SEC is looking into issues raised in Allergan’s suit, which alleges the trio violated securities rules by taking steps to launch a hostile offer while Pershing Square was quietly amassing its Allergan stake.
“There is nothing illegal, unethical, or improper in taking a toehold position before a merger is proposed, even if it is not wanted by the target’s management,” Pershing said in a statement.
“We welcome the SEC’s review of the facts.”
Although the deal is unconventional, most legal experts said it appears to be legal. “There is nothing to this; zero,” said Jonathan Macey, a professor at Yale Law School who has followed the case closely.
Valeant’s bid turned hostile in June after Allergan turned down three revised offers.