Thursday, April 24, 2014

Legal Memo Defends Ackman’s Actions in Allergan Bid

According to this article: 

In the wake of this week’s unusual hostile bid for Allergan, one of the most pressing questions has been whether William A. Ackman, the activist investor who runs Pershing Square Capital Management, engaged in insider trading.
By accumulating a large stake in Allergan while knowing a bid was imminent, Mr. Ackman clearly had an advantage over other investors. And when Pershing Square and Valeant Pharmaceuticals announced its plans, the value of Mr. Ackman’s $4 billion stake quickly rose by about $1 billion. But because Mr. Ackman is part of the buying group, it appears he was well within his legal rights. The fact that the tactic was legal, however, does not mean it is not drawing scrutiny.

Another issue receiving scrutiny in the wake of the bid for Allergan is whether Pershing Square and Valeant should have been forced to disclose the stake they were amassing sooner.
The S.E.C.’s so-called Schedule 13D window stipulates that investors who accumulate 5 percent of a company’s stock must publicly report their position within 10 days of crossing that threshold, but allows the stake to grow in those 10 days.
“For many years numerous market participants have urged Congress to shorten the window, noting that almost every other developed market has a much shorter period to make filings disclosing large positions,” the Cleary lawyers wrote. The Dodd-Frank regulation in 2010 authorized the S.E.C. to close or shorten the 10-day window, but it has not yet acted.

Finally, there is the question of whether Valeant and Pershing Square should have filed antitrust pre-notification under the Hart-Scott-Rodino Act, notifying regulators of a potential merger of rivals. But because Pershing Square mostly bought options, it did not have to report holding underlying shares. Therefore, the Cleary lawyers wrote, “it appears that no filing had been required.”
Though Pershing Square and Valeant appear to have stayed well within their legal rights in accumulating their 9.7 percent stake in Allergan, “this week’s high-profile events regarding Allergan may put pressure on the S.E.C. (and potentially Congress) to address a number of important policy questions,” the memo stated.”




Do you think this is a case of “illegitimate imbalance of information beyond the classic insider trading?” Any opinions about this topic?

1 comment:

  1. Although this is under scrutiny, I would be surprised if Ackman had not used his information to his advantage. I see this as somebody telling you about a great investment that they are about to open, so you can get in on the ground floor. I would obviously use this information as I believe Ackman used the information he was given.

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