Pershing and Valeant Settle Allergan Lawsuits

05.01.2018 -

Pershing Square, the hedge fund of US activist investor Bill Ackman, and Canada-based drugmaker Valeant Pharmaceuticals have agreed in principle to pay $290 million to settle two lawsuits related to their unsuccessful attempt to acquire Botox producer Allergan in 2014. This would see the former pay $193.75 million and the latter $96.25 million. 

In the lawsuits filed in the Central District of California, which had been scheduled to go to trial on Jan. 30, the Allergan investors allege they were misled when Ackman bought their shares with the secret knowledge that Valeant was planning a hostile bid.

The shareholders accused the fund and the Canada-based drugmaker of insider trading in the course of the bidding process, claiming the fund's stake in Allergan shot up in value by $1 billion as soon as the buyout bid was announced.

All told, after Ireland-based Actavis bought the California drugmaker and subsequently changed its own name to Allergan, Pershing made a paper profit of $12 billion, the news agency Bloomberg said.

To conclude the settlement, however, Pershing and Valeant need the approval of the district court in Santa Ana, California. This is no formality, as Judge David O. Carter – without waiting for a formal filing – immediately after being notified ordered the parties to appear before him on Jan. 16. The judge said he had “substantial questions regarding whether the settlement amount is reasonable and fair."

While Ackman said he continues to believe that the case against Pershing has “no merit,” he said it appears preferable to settle now rather than continuing to spend substantial time and resources pursuing the litigation.

Valeant chairman and CEO, Joseph C. Papa, said his company believes the agreement with Pershing to settle out of court will enable it to focus its attention and resources on its corporate transformation, despite the fact that it has always “remained confident” of its position.

Under the proposed settlement, Allergan investors who sold common stock during the two-month period between Ackman and Valeant’s agreement to pursue the acquisition jointly and Valeant’s public announcement of its takeover proposal are due to receive $250 million. The remaining $40 million is earmarked for compensating investors in Allergan derivatives, who filed a separate lawsuit.

Pershing Square reportedly lost $4.2 billion on its investment in Valeant. The hedge fund pulled the plug on its engagement in March last year.

In separate news, the new Allergan has announced a restructuring scheme during which it will cut 1,000 of its nearly 1,700 jobs and leave another 400 open positions unfilled, reducing the headcount by 1.400. The Dublin drugmaker said it expects the scheme to cost about $125 million and generate savings of $300-400 million.

Allergan’s troubles are attributed to a $3.2 billion charge it was forced to take after losing a patent dispute in 2017. The company is expected to face increasing generic competition, in particular for its Alzheimer's drug Namenda and its dry-eye drug Restasis.