We saw more theatrics over the last two days in the Allergan/Pershing Square drama (you can see the two relevant SEC filings here and here). Bill Ackman's Pershing Square has been trying to force Allergan (NYSE:AGN) into a hostile acquisition by Valeant Pharmaceuticals (NYSE:VRX). Pershing Square had said it would gather the required votes by mid-August. But now it is complaining to proxy-advisory firms that Allergan's bylaws are onerous. I didn't find any of the bylaws specifically called out by Pershing Square to be onerous. What could be more logical than canceling a shareholder's votes if that shareholder sells before the special meeting? Even though just 25% of the votes are required to call a special meeting, voting out directors requires 50%. If Pershing Square is having so many apprehensions while gathering 25%, how will it ever gather 50%?
In its support, Allergan said that a long list of companies including American Express (NYSE:AXP) and Coca-Cola (NYSE:KO) had the same bylaws. In response, Pershing Square called those companies "bad actors." The largest investor in these companies is Warren Buffett who is the undisputed champion of shareholder rights. Buffett has held his stakes in both companies for more than 20 years. I believe Warren Buffett's long-held large stake in a company carries infinitely more weight than any proxy advisory firm or activist hedge fund's opinion. In the 2014 Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) annual meeting Charlie Munger said that activist shareholders were not good for America.
Allergan shareholders should remember what happened in the Carl Icahn and Biogen Idec (NASDAQ:BIIB) affair. Carl Icahn took a stake in Biogen Idec and tried for several years to force a sale of Biogen Idec. He got the support of a proxy advisory firm for his nominees for Biogen Idec's board. To cut a long story short, after several years of drama, Icahn gave up and sold his Biogen Idec holdings in 2011. Biogen Idec's stock price then tripled over the next three years. At the same time, Icahn also sold his Regeneron Pharmaceuticals (NASDAQ:REGN) holdings. Regeneron went up six-fold in the three years after Icahn sold. Luckily for their shareholders, Biogen Idec and Regeneron must have had strong protections against activist investors. Bill Ackman said that Allergan was the first time he was investing in a pharma company, it looks like it would have been better if he had stayed away from pharma. Mixing activist investors and drug companies doesn't seem to make sense. With such complaints to proxy advisory firms Ackman is revealing a very weak hand. In this previous article, I had said they were "huffing and puffing to gather shareholder support." These complaints by Pershing Square about onerous bylaws confirms my suspicion that they do not have enough votes.
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