Pershing Square says Allergan CEO led smear campaign against Valeant

MONTREAL – Pershing Square Capital Management says that it has presented to a California court evidence that management at Allergan Inc. made false and misleading statements about Valeant Pharmaceuticals Inc. (TSX:VRX) as part of a “scorched earth” campaign to thwart the Canadian company’s hostile takeover bid for the California-based maker of Botox.

Pershing Square, which is Allergan’s largest shareholder and Valeant’s ally in the takeover battle, says in a 44-page court filing — which has many portions blacked out and which hasn’t been tested in court — that Allergan chief executive David Pyott, who is also chairman of Allergan’s board, “personally led the charge and directed much of the misconduct.”

The New York-based investment firm, headed by activist investor Bill Ackman, says Pyott overrode a recommendation from another member of management who said that Allergan’s defensive campaign went too far and disregarded outside advisers by falsely stating that Valeant’s accounting was opaque and problematic.

An Allergan spokesman said the company believes there is no evidence to support Valeant and Pershing Square’s allegations.

“Allergan stands by its statements regarding the unsustainability of Valeant’s business and we welcome the opportunity for a full hearing on Valeant’s business model at the appropriate time,” the spokesman said.

Allergan has challenged Valeant’s business model and alleges that Pershing Square’s most recent court filing is an attempt to distract shareholders from Allergan’s allegations that Valeant and Pershing Square had engaged in insider trading. Those allegations are scheduled to be heard Oct. 28 in California.

Pershing Square’s counterclaim alleges that statements by Allergan’s management were designed to reduce Valeant’s share price and thus the value of its offer to Allergan’s shareholders, who would get a combination of cash and stock if they accept the deal.

Ackman, an activist investor who has a history of power struggles with boards of directors, including a successsful effort at Canadian Pacific (TSX:CP), said last week that his lawyers had dug up new documents that are part of a motion to amend a countersuit against Allergan.

The dispute is before the U.S. District Court in Santa Ana, Calif.

The Oct. 20 filing says Pershing Square unearthed details in more than 4,200 pages of material that Allergan previously withheld or overlooked, including communications between company executives. Pershing Square also deposed several members of the Allergan board and management executives, including Pyott.

A hearing on Pershing Square’s motion to amend its countersuit is slated for Nov. 17.

There is also a special meeting of Allergan shareholders scheduled for Dec. 18 to hear Ackman’s bid to replace the majority of its directors.

David Maris of BMO Capital Markets said he doubts shareholders will remove a majority of Allergan’s board, which he said has delivered top shareholder returns and margins. Pyott was selected by Harvard Business Review as the fourth best of 832 CEO’s around the world for delivering shareholder return.

Even if Allergan’s shareholders seek to remove directors, Maris said there’s no guarantee they will be replaced with candidates presented by Pershing Square. There is no scheduled vote to install new members and Allergan can fill any vacancies with its own appointees.

Valeant’s shares closed at C$146.47 Tuesday on the Toronto Stock Exchange, up $5.73 or more than four per cent. They were up 4.49 per cent to US$130.38 on the New York Stock Exchange. Allergan’s shares were up 3.85 per cent at US$186.16 in New York.

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