Wednesday, October 29, 2014

On the Hardship of Co-Bidders

Slide 66 from Latham Watkins
There are a lot of good reasons why I think Judge Carter will enjoin Pershing Square's 9.7% stake in Allergan. The cleanest and easiest reason is captured in a single Latham Watkins slide from the PowerPoint deck they presented in yesterday's hearing. The argument is so simple that even I can understand it. The slide speaks to hardships. Hardships weigh heavily on a Judge's heart because the last thing they want to do is create case law for frivolous reasons. Even in the ABC vs. Aereo case, in which Aereo argued that a preliminary injunction would shut them down due to the financial hardships, Judge Nathan issued a PI against Aereo because it was outweighed by the irreparable harm caused to ABC with respect to loss of subscribers, loss of copyright control and damage to relationships.

When judging the hardships that would be incurred in the Allergan/Valeant proceedings, a preliminary injunction against Pershing Square would not cause irreparable harm to Pershing Square or its members; the special meeting would still take place, all other stockholders would still be able to vote at that special meeting, and Pershing could still solicit proxies in support of their control contest. 

It is not at all apparent what hardships would be incurred upon Pershing Square and Valeant if the injunction is ordered. At worst, it would give alternate bidders more time to consider a competing offer for Allergan and Pearson would be forced to look for an alternate company to stall his company's imminent demise, or offer a more competitive counter-bid. 

Hey, we're co-bidders!!!
Provided that the SEC concludes it's review of Pershing's actions and blesses the questionable new type of acquisition structure being pursued by these friendly "co-bidders" Valeant, the worst harm that could come to the two is that they make more money!!! #FWP, amiright? If, for instance, Shire swoops in, successfully engages the Allergan BoD and reaches an agreement for $250/share, Pershing would be free to vote in favor of that transaction and make a ton of money, and as a member of PS Fund 1, Valeant would receive  a minimum of 10% of  Pershing Square's profit. It's sin-win for everyone!

Thus if shareholders really want Allergan to accept Valeant's overtures of date rape, enjoining Pershing's shares wouldn't prevent Pershing from dumping a bunch of roofies into Allergan's Old Fashioned, it would however prevent Pershing from dragging Allergan back to the ₯₯₯ Frat house against it's will. But hey, I hear the NY Post likes to par-tay,so there's always *that*.

I'm on tenterhooks waiting for Judge Carter's decision. There is a lot riding on his decision and I'm sure he fully recognizes that, which is why there was no immediate decision yesterday. Normally, I'd expect a week to pass after oral arguments before an opinion and order is issued in such a case, but we may get really lucky and get an opinion as early as tonight or tomorrow, because of Judge Carter's impending scheduling conflicts.

I know how much Bill Ackman likes contests, so in the meantime, I propose a little contest between the two of us to keep him engaged: let's see who can use the least oxygen while we wait for Judge Carter's decision. This is one time I REALLY hope Bill wins.

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