Key Questions for the Half Too Clever

After both Allergan and Valeant had their opportunity to present their oral arguments to Judge Carter, Judge Carter presented both sides with some key questions. After warning both legal teams that he wanted succinct answers, Judge Carter asked:
"Why shouldn't this court just adopt the definition of "co-bidder" from regulation 14D? ....The SEC hasn't seen fit to define who a co-offering person might be. Won't it create a lot of confusion to say that someone who is a co-bidder, for disclosure purposes, might not be a co-offering person for rule 14e-3 purposes? And how would you distinguish between a co-bidder for regulation 14D purposes and a co-offering person for rule 14e-3 purposes? For the collective defendants, let's hypothetically --or let's assume that plaintiffs are right, that generally "co-bidders" should be defined broadly while "co-offering persons" should be defined narrowly. How would you distinguish between a co-bidder for regulation 14D purposes and a co-offering person for rule 14e-3 purposes?The longer you take with that answer, the less credibility you are going to have for me. In other words, you are unlimited in terms of rebuttal, but conciseness now and precision is what I'm looking for. And if you junk up your answer, well, I'll leave that to your wisdom. You have been warned."

1. "If this court finds that you have not raised serious questions as to rule 14e-3 claim, should the defendants be required to make any corrective disclosures pursuant to rule 14a-9"*

1. "How does either Allergan or Ms. Praschauer have standing to seek an injunction against PS Fund 1 voting altogether even if PS Fund 1 makes disclosures? The case law holding that an issuer like Allergan has standing under the Williams Act all seem to involve issuers protecting their shareholders from misleading statements. Here, you are asking the court to enjoin PS Fund 1 from voting altogether in December even if PS Fund 1 makes corrective disclosures. And I'm going to ask you to once again specifically and concisely address why Allergan has standing to do that."

1. "The next question I have concerns shareholders, and that is, does a current shareholder have standing to ask for a fellow shareholder to be enjoined from voting altogether even if that fellow shareholder allegedly violated securities laws?"

1. "Next question for Allergan. What legal authority is there that having directors removed, even six of them, is an irreparable harm to a corporation or to a current shareholder?"

(*reader note, SEC Rule 14a-9(a) - applies to omission or misleading statements "in connection with any tender offer or request or invitation for tendres, or any solicitation of security holders in opposition to or in favor of any such offer, request, or invitation." )
Specifically for Pershing Square, Valeant, and PS Fund 1, Judge Carter asked 

1. "Why did defendants use the term "co-bidder entity" in their February 25, relationship agreement if they weren't planning a tender offer at that time? And why didn't...the defendants disclose in their proxy solicitation that under the February 25 relationship agreement, Valeant and Pershing Square agreed to be called co-bidders?"

1. "Assuming that plaintiffs have standing to seek injunctive relief, if the court finds that Allergan's raised serious questions as to the merits of the rule 14e-3 claim, why shouldn't this court enjoin PS Fund 1 from voting its ill-gotten shares?"

1. "I want to turn back to the holistic view of what I think that the Williams Act was designed to do, and that was it was designed to protect shareholders. When we get into the equitable mudslinging that's going on between the parties before this court, you are going to have to explain to me why, under the Williams Act, it matters concerning equitable or inequitable conduct, especially as it applies to mergers. You have to tie that to shareholders under the Williams Act." 

Carter then encouraged the group to "keep the Williams Act in mind because my tentative view is that
my focus is to be on the innocent shareholder, if you will. If I'm wrong, I want you to correct me and cite law why I'm supposed to be involved and why the Williams Act involves mergers, which is
where this seems to be going, the last part of the arguments."
The entire case is fascinating, but part of Judge Carter's interaction with Valeant/Pershing caught my attention because part of their defense in support of the use of the word "co-bidder" cites a July 5th letter Valeant's Robert Chai-Onn received from the SEC. In that letter the SEC requests that Valeant revise the cover page of the June 18 SC TO-T to identify Pershing Square as a co-bidder in the tender offer. What Judge Carter observed and what his question was driving at was how this July document could have retrospectively guided Valeant & Pershing's earlier behavior. Judge Carter added
"Because the import of your argument is that we had no choice but to follow the SEC's guidelines and their co-bidder statement"
Specifically for Allergan, Judge Carter asked:

What Judge Carter is getting at here is that the defense was using SEC guidance that arrived five months after an email exchange between Pershing and Valeant counsel. This may turn out to be the half too clever move by the duo because Pershing and Valeant counsel specifically noted in their February 17th email that  "If a transaction proceeds by way of a tender offer, P [Pershing] will be identified as a co-bidder, and, if b way of merger, P will be identified as a soliciting person."

For their defense to hold on those grounds, they must have a tremendous amount of insight/foresight into the SEC. I have no such insight, so like you, I'll patiently wait for Judge Carter and the SEC's formal opinions.