According to Bloomberg, Valeant (VRX) and Bill Ackman of Pershing Square (PSHZF) could face a jury trial for insider trading in Allergan (AGN) shares:
Activist investor Bill Ackman and his estranged former collaborator in a 2014 hostile takeover bid for Botox-maker Allergan Inc. will likely face a jury trial next month over claims they engaged in insider trading.
U.S. District Judge David Carter issued a tentative ruling at a hearing Friday, denying a request by Ackman and Valeant Pharmaceuticals International Inc. to throw out the allegations by Allergan shareholders. They claim they were tricked when Ackman bought their shares in the secret knowledge Valeant was planning a hostile bid.
In Q4 2015 Judge Carter decided Valeant and Ackman must face an insider trading lawsuit pursuant to their Allergan takeover bid. It appears a trial could take place as early as January.
The Situation
In 2014 Pershing Squared acquired a 10% stake in Allergan worth about $5 billion. In Q4 2014 Judge Carter had to decide whether Ackman could vote his Allergan stake in support of Valeant’s hostile takeover bid. Allergan vehemently opposed the maneuver; it argued that Ackman began acquiring his stake as early as February 2014 when he knew a takeover bid was imminent, and would create a sizeable profit for his shares. The implication was Ackman relied on inside information in acquiring his Allergan stake.
Judge Carter allowed Ackman to vote his shares pursuant to a decision that could have removed six Allergan directors who opposed Valeant’s takeover bid. However, in mid-November Allergan agreed to a $219 per share bid from Actavis which trumped Valeant’s $180 per share bid. After the bidding war Pershing Square stood to net about $6 billion, of which Ackman said he would share 15% with Valeant.
Potential Impact On Valeant And Ackman
A potential ruling against Valeant and Ackman could be determined on whether they can convince Judge Carter or a jury that Ackman acquired his Allergan stake long before Valeant’s tender offer for Allergan had been planned. A negative ruling could force Ackman to disgorge his profits from the Allergan trade; this could also result in Ackman selling certain of his current Pershing Square holdings to come up with the cash. There is the potential that Valeant might also have to disgorge any profits Ackman may have shared with the company on the trade.
According to Bloomberg the focus of a trial could be on the potential damages to be paid by the defendants:
Based on comments from Valeant lawyer John Hueston during the hearing, the judge seems to be siding with the Allergan shareholders on the question of whether Ackman and Valeant took “substantial steps” toward a tender offer, a necessary condition for illegal insider trading, before Ackman started quietly acquiring Allergan shares in late February 2014.
Likewise, the judge in his tentative decision appeared to agree with the shareholders that Ackman wasn’t a co-offeror in the Allergan bid and as such exempt from prohibitions against insider trading.
If so, that would mean that the judge may find Ackman and Valeant are liable for insider trading as a matter of law and the jury trial will focus only on the amount of damages they owe the Allergan shareholders.
There was speculation that Ackman might have been tempted to settle the case as early as November. Ackman and Valeant had previously agreed the drugmaker would pay 60% of any settlement so long as both parties agreed to the terms. News of a potential trial hearing could mean (1) settlement talks might have failed and (2) Valeant could be off the hook for 60% of any settlement; this could have been behind the nearly 12% spike in VRX Friday. However, a potential disgorgement of profits and sizeable legal fees could be on the horizon for the company.
Conclusion
The Allergan insider trading case could create more negative headlines and uncertainty for VRX. The stock remains a sell.
On Trump And The Global Economy
The second installment of Trump And The Global Economy Town Hall took place October 24th in Fort Greene. It Featured Professor Lance Brofman, Coconut Rob (Coconut Rob Smoothies), Wuyi Jacobs (AfroBeats Radio) and Ralph Baker, author of Shock Exchange: How Inner-City Kids From Brooklyn Predicted the Great Recession and the Pain Ahead.
The event was well-received by the community. We parsed through President Trump’s proposed tax plan and [i] how it was pure economic folly and [ii] high net worth individuals could potentially game the system by shifting income around. Apparently, Kansas Coach Bill Self did this when the state of Kansas cut taxes in the past. We discussed the pros and cons of technology on workers and the economy. How will the economy and country prosper under Trump’s leadership vis-a-vis Obama? What’s behind the verbal sparring with black athletes, ESPN’s Jemele Hill and North Korea’s Kim Jong Un?
