Friday, October 31, 2014

Belief in Our Own Guidance

Let's *temporarily* put Bill Ackman's and the NY Post's personal vendettas against me aside and focus on the recent settlement reached between class action plaintiff's Bostick et al and Herbalife.

As much as I will editorialize how I think this is a tremendous win for Herbalife and dissatisfied former consumers alike in the near future, I thought it better to refrain from that for now and simply present for your own reading pleasure the PLAINTIFF's memorandum in support of the joint settlement motion reached today.

The one thing I will say is the same thing I said at the end of last year:
“No man is great enough or wise enough for any of us to surrender our destiny to. The only way in which anyone can lead us is to restore to us the belief in our own guidance.”-Henry Miller

Thursday, October 30, 2014

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."
LOGOThe 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.

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.

Thursday, October 2, 2014

The Pivot

"Don't worry Sugar Bear,
I'll still be around."
Poor Sugar Bear. He'll be very disappointed when he learns that he can't get enough Tim Ramey. That is because Mr. Ramey will join Pivotal Research Group, where he'll again function as an analyst covering Food, Beverage & Personal Products. This comes on the heels of Mr. Ramey joining Post Holdings in January of this year as the Director of Strategic Ventures. 

Prior to joining Post, Mr. Ramey was a controversial analyst at D.A. Davidson & Co. He was controversial insomuch as he gained notoriety for repeatedly challenging Ackman on his Herbalife short and for making those that followed his advice a shit-ton of money. In fact, Bill Ackman was so frustrated with the legacy of Mr. Ramey's outlook on the company that he lashed out at him during his "smoking gun", "Enron-like" fraud presentation on Herbalife in July(a full six months after Mr. Ramey was no longer working as an analyst at DADCO). Ackman claimed that Mr. Ramey had been fired from DADCO for being too bullish on Herbalife, a statement which Mr. Ramey ultimately forced Mr. Ackman to publicly retract. In fact, when DADCO was contacted asking if Mr. Ramey had been terminated, they categorically denied that claim and stated that he "was absolutely not terminated" from their firm. 

The shorts will inevitably argue that Mr. Ramey's switch to Pivotal is a sign he was fired from Post and that he reached the zenith of his career when he hit #2 on StarMine's 2014 Top Stock Picker in their Overall Analyst Awards for his 2013 work at DADCO. Among those 2013 picks, the street watched as names such as Herbalife shook it's way to 138% returns, Omega Protein bulked up 101%, NuSkin ageloc'ed 273%, Tyson Foods pecked out 72% and Constellation Brands saw a starry eyed return of 99%. Surely, that kind of performance gets you fired from your analyst position (#FWP).

In light of Bill Ackman's former claims about Mr. Ramey's reasons for switching jobs, I pre-emptively reached out (just to spare Pershing Square the trouble of another retraction) and confirmed that Tim Ramey was NOT fired from his position at Post where he was an integral component of the company's recent M&A activities; particularly his very active role in the Post acquisition of Michael Foods. In reality, Mr. Ramey is reportedly remaining employed at Post Holdings as a consultant, built on a 25+ year friendship with Bill Stiritz.

I doubt that Mr. Ramey could comment on his plans to initiate coverage for specific companies like Herbalife, but in a letter he sent to friends, colleagues and clients, he noted that his coverage at Pivotal will focus on his formerly covered industries. It is probably very safe to say though that he will not be launching coverage on Post Holdings, but I do suspect that he'll launch coverage on many of his former names given his in depth coverage of the names in the past.

And looking back at the tape bomb shortsellers threw at Herbalife with last week's false rumor that Carl Icahn was selling his stake in the company, I won't be surprised at all if they try to re-engineer Mr. Ramey's new gig at Pivotal into another lie about Bill Stiritz's position in Herbalife. 

A sage adviser once said that "one lie equals 1,000 lies". Remember that when the shorts tell you that Tim Ramey's pivot was actually his firing from Post  Holdings and that Bill Stiritz is selling his stake in Herbalife. You'd also do well to remember that as a 13D holder in Herbalife, if Stiritz was selling his stake, EDGAR would have told you about it already, which it hasn't.