Takeover tactics: A new wrinkle

THE tactics used by Valeant Pharmaceuticals and Pershing Square Capital, an activist hedge fund, in their hostile bid for Allergan, the maker of Botox, have furrowed some brows. America’s antitrust laws say that any share purchase worth $76m or more must be approved by the Federal Trade Commission. When buyers apply for this, it slows their stake-building and alerts their acquisition target. However, in this case, a fund created with $75.9m of Valeant’s money and $4 billion from Pershing Square circumvented the rule by buying options and forward contracts (which do not include voting rights) rather than shares to gather, in effect, a 9.7% stake in Allergan without being detected.That was not the only clever, but apparently perfectly legal, manoeuvre by the bidders. Normally, when an investor makes money through advance knowledge of a takeover bid, the courts consider the profits to have been misappropriated from the bidder, since the investor’s buying will have pushed up the price of the target. In this case, since Pershing Square was being invited to take part in the bid, that made it all legal. So far the fund’s paper profits exceed $1 billion. Other activist funds will be taking notes, and are likely to try similar tactics unless the regulators put a stop to them.Not everyone, however, is cheering. “Companies are wondering whether they too will wake up one morning to…

Link to article: www.economist.com/news/business/21601527-bidders-botoxs-maker-took-advantage-gaps-takeover-rules-new-wrinkle?fsrc=rss|bus

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