Activist investors see Ackman-Valeant deal as a model to follow

Tue Apr 22, 2014 6:32pm EDT
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By Svea Herbst-Bayliss

NEW YORK, April 22 (Reuters) - William Ackman's $47 billion joint bid with Valeant Pharmaceuticals International Inc to buy Botox maker Allergan Inc may become a model for future deals, rival fund managers said.

The unsolicited bid, the plans for which were revealed late on Monday, was unusual for a so-called activist investor such as Ackman. Usually, large acquisitions are the realm of private equity investors and corporations, not activist shareholders. [ID: nL3N0NE34X]

Ackman, who runs the $13 billion Pershing Square Capital Management hedge fund, typically first buys a stake in a company and then agitates for change, sometimes leading to a sale. By having a bidder lined up in Valeant, Ackman essentially skipped that step, speeding the deal up and making his returns more likely.

He already has a massive paper profit on his 9.7 percent stake in Allergan, built over February and March. Allergan's shares rose more than 15 percent on Tuesday.

At the Active-Passive Investor Summit, an industry conference in New York on Tuesday, fund managers and investors said they expected more activists and companies to explore this route, and it could help speed up the pace of merger and acquisition activity in the process.

"This is absolutely something we will see more of," said James Mitarotonda, founder of activist hedge fund Barington Capital, speaking on the sidelines of the conference.

Investors in Pershing Square funds said it also comes with built-in protections that would not be there in a normal activist investment. A deal could boost Allergan and Valeant shares. And even if it did not happen but Allergan convinced shareholders it can grow more effectively alone, Pershing Square would still see its investment grow.

Although other activists have done such deals in the past, the Valeant-Ackman pairing was getting more attention because of its size and because of Ackman's involvement, fund managers said.   Continued...