Allergan Shareholders Should Back Special Meeting, ISS Says

Aug 06, 2014 4:07 pm ET

(Updates with Ackman’s comments in sixth paragraph.)

Aug. 6 (Bloomberg) -- Allergan Inc. shareholders should support a special meeting, a second investor advisory firm said today in a boost to Valeant Pharmaceuticals International Inc.’s efforts to take over the company.

The recommendations are making it more likely that activist investor Bill Ackman’s Pershing Square Capital Management LP can get the support he needs to hold the meeting in an effort to remove most of the board at the maker of the anti-wrinkle drug Botox. Ackman needs at least 25 percent of Allergan’s shareholders to agree to the meeting. His goal is to add six new directors and push through a deal.

“There appear to be significant governance issues which could be addressed” at the proposed meeting, said Institutional Shareholder Services Inc., an advisory firm that makes recommendations on proxy fights often followed by investors. The recommendation follows a similar determination yesterday by Glass Lewis & Co, another investor advisory.

ISS is weighing in on the increasingly acrimonious takeover attempt by Laval, Quebec-based Valeant, backed by Ackman who amassed a 9.7 percent stake in Allergan to help shepherd the deal. The adviser also criticized restrictive bylaws Allergan adopted that make it difficult to call special meetings, noting the shareholders could undo those at the proposed meeting.

‘Come-to-Jesus’ Vote

“Valeant has publicly indicated it will not further increase its offer without engagement from the Allergan board,” ISS said. “How compelling that offer is, however, remains unclear this far in advance of a special meeting, precisely because neither bidder nor target has yet had to face a come-to- Jesus shareholder vote on their plans for the future of Allergan.”

The ISS report should cause shareholders to question the credibility of Allergan’s board that is “pursuing frivolous litigation tactics and baseless attacks” to thwart the deal and change company bylaws, Ackman said in a statement.

Allergan, which has refused talks with Valeant, sued on Aug. 1, claiming the drugmaker colluded with Pershing Square to profit from trades ahead of the bid’s announcement, using its insider knowledge of the impending offer. Valeant and Pershing Square called the lawsuit a “desperate attempt to delay or avoid” the special shareholder meeting requested by Ackman.

“Allergan’s board of directors and management team remain focused on delivering significantly more value than Valeant’s proposal,” Allergan said today in a statement. “These recommendations do not change the fact that Valeant’s offer is grossly inadequate.”

Irvine, California-based Allergan has repeatedly rejected Valeant’s acquisition offers, including the latest bid of $72 in cash and 0.83 of a Valeant share for each Allergan share. David Pyott, Allergan’s CEO, announced a restructuring including cutting 1,500 jobs as he attempts to persuade shareholders to keep the company independent.

Allergan declined about 1 percent to $157.10 at the close in New York while Valeant fell less than 1 percent to $110.02.

--With assistance from Marie French and Sonali Basak in New York.