The Bill Ackman problem everyone forgot is now at threat-level substantial

Pershing Square CEO Bill Ackman

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Pershing Square CEO Bill Ackman
source
Reuters

  • The insider trading case against Pershing Square founder Bill Ackman and Valeant Pharmaceuticals may go to trial.
  • Investors in Allergan Pharmaceuticals are suing Ackman and Valeant over their hostile takeover of the company in 2014.

There may be a Bill Ackman insider-trading trial on the way.

You may recall that investors in Allergan Pharmaceuticals are suing the billionaire hedge fund manager and Valeant Pharmaceuticals over their 2014 attempt to buy Allergan in a hostile takeover. These investors claim that they were kept in the dark as Ackman built his position in Allergan, and then collaborated with Valeant on an attempted hostile takeover of the company.

Ackman and Valeant wanted the case thrown out, but a California judge just denied the request, at least tentatively. That means, unless the judge changes his mind or the parties can come to a settlement outside of court, this matter will go to trial.

Pershing Square is not commenting on the matter.

It was a weird trade

Shareholders in Allergan, including the State Teachers Retirement System of Ohio, sued Ackman and Valeant on the basis of SEC Rule 14 e-3. Basically, it says if company A is planning to take over company B, anyone with knowledge of that takeover can’t trade company B shares once things are in motion.

And here’s the trade they’re applying it too – which was admittedly, even to observers at the time, pretty strange:

During the 2014 hostile takeover attempt, instead of buying Allergan outright, Valeant teamed up with Ackman, who purchased a large chunk of Allergan shares.

Ackman’s stake was disclosed alongside Valeant’s hostile takeover offer, and – surprise! – the billionaire said he would vote his newly acquired Allergan shares in support of the sale to Valeant.

Ackman then pulled out the activist-investor playbook to pressure Allergan to accept an offer from Valeant. He wrote nasty letters describing Allergan’s “incredibly inappropriate” behavior as it sought to fend off the takeover by a company that was known for slashing research-and-development spending and jacking up drug prices.

That didn’t work.

Allergan was eventually rescued by a white knight and Ackman – still an Allergan shareholder – made a bundle (about $2.6 billion by one count). Valeant profited a great deal too, because as part of its deal with Ackman meant it got a portion of his profits.

The rest is investment history. Ackman, who hadn’t invested in Valeant during the Allergan attempt, became one of its biggest shareholders. So Pershing Square was one of the worst hit when high-flying Valeant collapsed 90% from 2015 to 2016 after fraud was discovered at the company.

Ackman has since left Valeant. Valeant itself has stabilized. But this case remains the way Ackman and Valeant could still see all their gains washed away