(The opinions expressed here are those of Alison Frankel, a columnist for Reuters.)
By Alison Frankel
NEW YORK (Reuters) - Allergan’s attempt to ward off a precedent-setting joint bid by the Canadian pharmaceutical company Valeant and the hedge fund Pershing Square continues to remake the rulebook for hostile takeovers.
On Monday, U.S. District Judge David Carter of Santa Ana, Calif., ordered Allergan to turn over to lawyers for Valeant and Pershing the complete records of recent board meetings and other strategic documents despite Allergan’s arguments that the documents would expose its plans for fending off the hostile bidders.
The ruling came in Allergan’s suit accusing Pershing of acquiring its shares based on insider information about Valeant’s plan to acquire Allergan. Allergan is seeking to enjoin Pershing from voting its nearly 10 percent stake at a special meeting of Allergan shareholders scheduled to take place on Dec. 18.
The company’s lawyers at Latham & Watkins had argued that Allergan is entitled to shield sensitive information under a “business strategy privilege” that dates back to takeover defense litigation from the 1980s and 1990s.
“This case is about one question: whether defendants violated federal insider trading and disclosure laws in connection with Valeant’s proposed hostile attempt to take over Allergan,” Allergan wrote in a brief. “Defendants nevertheless seek to compel Allergan to produce some of the most competitively sensitive information in its possession - information that has nothing to do with those claims and that if disclosed to defendants (one of whom is Allergan’s direct competitor), would substantially harm Allergan and its stockholders by impairing Allergan’s ability to attract strategic transaction partners and negotiate effectively with them.”
Pershing and Valeant (represented by Kirkland & Ellis and Sullivan & Cromwell) said Allergan had concocted the supposed “privilege” by misreading Delaware Chancery and federal court precedent.
At most, the bidders said, targets of unsolicited bids are entitled to request a limited protective order to shield information related to their takeover defense. Allergan’s large-scale redactions, according to Valeant and Pershing, far exceeded what’s permissible.
“It also appears that Allergan has redacted references to its plan to contact its large shareholders and attack defendants as improperly trading in Allergan’s stock and engaging in improper activity,” they said in a brief filed Saturday.
“Allergan’s disclosures to its own shareholders of the exact information it claims defendants should disclose would directly undercut Allergan’s claim that it should be provided an injunction to remedy the supposed lack of disclosure to these shareholders.”
Judge Carter agreed with Pershing and Valeant that shielding business strategy documents is not a privilege like the attorney client and work product privileges, but a qualified right.
Takeover targets have to show they’re only redacting evidence that would “reveal strategies for retaining or obtaining corporate control during a live corporate takeover situation.” In this case, he said, Allergan hadn’t shown that its redaction of dozens of pages of documents, without any explanation of what the redactions cloak, is justified under the qualified business strategy doctrine.
He ordered Allergan to turn over unredacted versions of all of the documents to Valeant and Pershing, subject to a previously approved confidentiality agreement that protects their public release.
Lawyers for both sides declined to provide a statement to me, but Allergan will probably try to stay the order. It has already said that the redactions aren’t relevant to its insider trading allegations against Pershing, but it’s a good bet that when Judge Carter holds a hearing on Allergan’s motion for a preliminary injunction on Oct. 28, Pershing and Valeant will have something to say about Allergan’s own tactics.
Reporting by Alison Frankel. Editing by Alexia Garamfalvi.