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Pershing Square is calling its meeting for what is presented as a formal voting process conducted according to SEC rules,[3] even though Pershing Square does not have the authority to act on behalf of the issuer and the vote is not for any real corporate action. Past examples of shareholder-hosted meetings were generally presented as opportunities to hear and offer views, without any references to voting-like processes.

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Pershing Square has reported owning 9.7% of Allergan’s stock, making the meeting host subject to SEC 13D requirements and suggesting careful attention to Allergan’s 10% poison pill threshold. Past shareholder hosts held relatively small positions in the subject company, allowing most other investors to comfortably communicate with the host.

1.

Will a participant trigger the poison pill? According to some observers, the Pershing Square “Proxy Statement” has been very carefully crafted to satisfy an exception to Allergan’s poison pill definition of “an agreement, arrangement or understanding to act together.” The exception is defined in a provision for “a revocable proxy or consent given to such Person in response to a public proxy or consent solicitation made pursuant to, and in accordance with, Section 14(a) of the Exchange Act by means of a solicitation statement filed on Schedule 14A).”[4] Others may argue, though, that this provision does not apply since the consent agreement between shareholders is not really “pursuant to” SEC regulations for a proxy solicitation if there is no real issuer meeting to be regulated.

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Does participation require SEC 13D reporting? Considering the reported 9.7% beneficial ownership of the host, legal advisors to investors must decide whether participating in the “Meeting” could be viewed as “acting in concert.” There are of course different types of participation to be considered, ranging from simply attending and listening to the more active granting of authority for “voting.” Even the simplest acceptance of an invitation to the meeting, though, is complicated by Pershing Square’s statement that it is asking shareholders for their agreement to support a “coordinated and powerful” process intended to influence Allergan management.[5] And since this process is not in fact a real issuer vote, securities law experts will have to determine whether an investor can rely upon SEC regulations applicable to voting.

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Opinion polling – Many investors as well as corporate managers are enthusiastic about using a quasi-voting process to survey investor views,[6] since the recent proliferation of online survey tools has made it impractical to get meaningful responses to conventional questionnaires. The Pershing Square presentation of a simple vote for or against its advocate-defined proposal, however, will not produce as much information about investor views as a questionnaire designed for that purpose.[7] Opinion research professionals have also expressed concerns about distortions resulting from higher participation rates by supporters of the “Proposed Resolution” than by opposed or indifferent shareholders, and by the absence of independent polling management to assure the integrity of both participant privacy and reporting.

In summary, Pershing Square’s use of a quasi-voting process may be a very effective means of attracting attention to encourage meaningful levels of shareholder response. Further refinements should be considered to eliminate regulatory concerns and improve the quality of results.

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Exchange of investor views – Although the preliminary “Proxy Statement” does not present details beyond bracketed spaces for future identification of a time and place, it is assumed that the physical convening of the “Meeting” will present opportunities for attendees to exchange views. The general design of the Pershing Square process, however, appears to be focused almost exclusively on the solicitation of support for its “Proposed Resolution,” and in that context it may not be constructive to invite debates and digressions.

It may be assumed that the Pershing Square plan was not developed for the purpose of providing an open exchange of investor views, but the legal as well as access issues raised by this innovation should stimulate thinking to improve both the old Denton model of shareholder-hosted “town hall” meetings and the Forum model of independently moderated meetings.

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Supporting a petition – Though presented in language to fit SEC regulations for proxy voting, Pershing Square has actually presented a very innovative means for shareholders to petition a company’s management. There are of course many legal and administrative issues to be resolved, but some refinement of this petitioning process could provide an effective alternative to current practices relying upon shareholder submissions of precatory proposals at annual meetings.

Pershing Square’s invention should be considered very broadly as a possible foundation for “petitioning” in situations that justify higher levels of attention.