April 22, 2014 Bruce Goldfarb Quoted in Reuters
William Ackman’s $47 billion joint bid with Valeant Pharmaceuticals International Inc to buy Botox maker Allergan Inc may become a model for future deals, rival fund managers said.
The unsolicited bid, the plans for which were revealed late on Monday, was unusual for a so-called activist investor such as Ackman. Usually, large acquisitions are the realm of private equity investors and corporations, not activist shareholders.
Ackman, who runs the $13 billion Pershing Square Capital Management hedge fund, typically first buys a stake in a company and then agitates for change, sometimes leading to a sale. By having a bidder lined up in Valeant, Ackman essentially skipped that step, speeding the deal up and making his returns more likely.
He already has a massive paper profit on his 9.7 percent stake in Allergan, built over February and March. Allergan’s shares rose more than 15 percent on Tuesday.
At the Active-Passive Investor Summit, an industry conference in New York on Tuesday, fund managers and investors said they expected more activists and companies to explore this route, and it could help speed up the pace of merger and acquisition activity in the process.
“This is absolutely something we will see more of,” said James Mitarotonda, founder of activist hedge fund Barington Capital, speaking on the sidelines of the conference.
Investors in Pershing Square funds said it also comes with built-in protections that would not be there in a normal activist investment. A deal could boost Allergan and Valeant shares. And even if it did not happen but Allergan convinced shareholders it can grow more effectively alone, Pershing Square would still see its investment grow.
Although other activists have done such deals in the past, the Valeant-Ackman pairing was getting more attention because of its size and because of Ackman’s involvement, fund managers said.
Ackman is known for aggressive moves, a reputation cemented by a win against railroad Canadian Pacific Railway Ltd, where it added seven new members to the board in 2012 and almost tripled its investment. One lawyer who works for a rival hedge fund said previous deals with similar structures have been of smaller, ranging from $1 billion to $3 billion.
To be sure, some fund managers and investors also said that in spite of the attention, it’s not easy to pull off too many such deals.
It requires an investor with plenty of available cash – the kind of money Ackman has – and it may not be a friction-free endeavor in the long run. The deal may also not always be beneficial to the acquirer, who would see the price rise as news of the potential deal gets out in the market.
“You need the right conditions for an investor and a corporate culture to take risks and identify value,” said Bruce Goldfarb, chief executive officer at proxy solicitor Okapi Partners. Goldfarb said a good activist-company matchup might be hard to find.