Dive Brief:
- Pershing Square Holdings has reached an agreement in principle to settle lawsuits over its attempted 2014 acquisition of the pharma company Allergan plc., alongside Valeant Pharmaceuticals International, Inc.
- Pershing Square had set aside $75 million in legal reserves related to the case; the increased settlement litigation will reduce Pershing Square Holdings' and the private funds' performance and net asset value by 132 basis points.
- The two companies have not admitted any fault, and neither Valeant nor Pershing's stock prices have been noticeably affected by the settlement.
Dive Insight:
In 2015, Valeant Pharmaceuticals was a Wall Street darling, with shares trading at an all-time high of $257.53. Its stock then started to tumble amidst insider trading accusations over the acquisition of Allergan plc, news of aggressive price hikes, and the use of online pharmacy Philidor Rx for false sales in what appeared to be some very dodgy accounting and bookkeeping practices. Bill Ackman and Pershing Square continued to invest heavily in Valeant, eventually owning 18.1 million shares in the company by 2015.
The Pershing Square Holdings, Valeant Pharmaceuticals International, Inc., and Allergan plc story has been a long one. Back in 2014, Valeant made a hostile takeover bid for Allergan. Prior to this, hedge fund Pershing Square, led by activist investor Bill Ackman, had built up its holding in Allergan to a 9.7% stake. The lawsuit, launched on behalf of Allergan shareholders in 2015, claimed that the hedge fund knew of the impending bid, amounting to insider trading. These stockholders claimed that, even though the takeover battle ended with Actavis' purchase of Allergan, they had still missed out on opportunities to profit. Ackman finally dumped Pershing Square's shares in Valeant in March 2017, at a loss of around $2.8 billion.
Even at the settlement stage there were still disagreements. According to a press statement form Pershing Square, "while Valeant had originally agreed to pay 60% of the cost of the settlement, Valeant and Pershing Square had different views on the desirability and timing of settling the case, which previously prevented settlement. On Dec. 19, 2017, Pershing Square acquired control of the settlement of the litigation in exchange for agreeing to pay a greater percentage of the settlement amount." Pershing ended up paying $193.75 million, two-thirds of the $290 million settlement, with Valeant paying out the remaining third.
"We continue to believe the case had absolutely no merit," said Pershing Square CEO Bill Ackman. "We decided, however, that it was in the best interest of our investors to settle the case now instead of continuing to spend substantial time and resources pursuing the litigation."
Valeant CEO Joe Papa further denies wrongdoing. "We believe this agreement to resolve the legacy litigation is in the best interests of the company, because it enables us to focus our attention and resources on the transformation of Valeant," said Papa. "Though we always have remained confident in our position and were prepared to try these cases on their merits, this agreement will eliminate disruption to our business."
It remains to be seen whether this will be a red line under Valeant's troubles and whether it will now begin to make a comeback under its current management after the exit of the former CEO Mike Pearson.