Leave it to Bill Ackman
to innovate further in activist investing.
The
Allergan-Valeant-Pershing Square (PS) situation already started
differently. A creative, driven pharma teams up with an aggressive
activist investor to acquire a complacent competitor. No one saw
that coming.
Valeant and PS have now
lobbed another grenade. This week, PS
proposed to Allergan shareholders that they attend a “meeting”
of sorts (in person or by proxy) solely to vote on whether Allergan
should negotiate with Valeant on a deal. This is not your usual
vote, or meeting.
The
Vote
PS calls it a "precatory"
"shareholder referendum", in which shareholders vote on a resolution
urging Allergan to negotiate with Valeant. Approval of the
resolution would not obligate Allergan to do anything. In the same
way that PS intends to solicit proxies in favor of the resolution,
they invite Allergan to solicit proxies that (presumably) oppose it.
And, it's not clear what constitutes "approval" of the resolution,
either - we guess winning a majority of the votes cast at the
meeting.
The resolution is similar
to some other new ones we've seen lately, specifically the ones that
Carl Icahn floated at eBay, and that
Starboard proposed at Darden. What's different is the meeting.
The
Meeting
PS will convene a
"meeting of the shareholders". This is emphatically not a special
shareholder meeting allowed under Allergan bylaws. It rather looks
like a nice little get-together specifically to express investor
views on the proposed Valeant deal. But, why?
It seems that if PS and
Valeant want to rally Allergan shareholders to their case, then they
don't have much choice. At the annual meeting earlier this month,
Allergan shareholders signaled solid support - they:
❖ elected all directors but one
with around 90% of the votes (the lead independent director received
two-thirds)
❖ approved exec comp with
almost 95% of the votes
❖ approved a company proposal
to allow action by written consent, but only by a narrow margin.
We speculate that the
written consent proposal, which at other companies wins handily,
probably lost votes because Allergan proposed a very narrow form.
How about a special
meeting? Starboard
did this, for its resolution at Darden. At Allergan, it takes
25% of the outstanding shares to call one. PS and Valeant would need
to solicit proxies, which could add months to the process. We wonder
if shareholders would agree to convene a special meeting so soon
after the annual meeting, just to consider a non-binding resolution.
And, Allergan does not
now allow shareholder action by written consent. Yes, shareholders
approved a bylaw amendment to allow consent solicitations. But,
procedural matters in implementing the new bylaw, and the
restrictive nature of the particular version of written consent that
shareholders approved, mean that Valeant and PS could
not realistically solicit written consent in any sort of timely
manner.
The
Implications
We wonder where this will
go. Will Allergan shareholders take this vote seriously? As a
non-binding proposal, shareholders may just ignore it, they way they
ignore many other similar proposals.
Alternatively, how will
this vote differ from some sort of an opinion poll of investors? In
other polls we’ve seen, investors (and many other survey subjects)
often favor proposals that they would otherwise oppose if the vote
really counted.
Valeant and PS need to
send a signal that Allergan shareholders want this deal. In the
absence of any other recent vote that went strongly against
management, and seeing as they have no other upcoming opportunity to
solicit real votes on an enforceable decision, this might be their
best option. And as options go, it’s pretty interesting.
