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In Takeover Battle, Allergan Agrees to Special Meeting Amidst Critique of Restrictive Bylaw

 

On September 15, 2014, Allergan made a concession in its contentious battle to thwart Valeant Pharmaceuticals and hedge fund Pershing Square Capital Management in their joint attempt at a $53 billion takeover of Allergan. 1  The concession was to agree to the special meeting called by Pershing Square with the hope of voting out a majority of Allergan’s board.2 Although Allergan had previously agreed to this meeting, Valeant and Pershing Square had expressed concern at a status conference with Chancellor Andre Bouchard that Allergan would further delay the meeting.3

In exchange, Valeant and Pershing Square agreed to drop pending litigation before the Delaware Chancery Court to force the meeting by arguing Allergan’s bylaws were overly restrictive.  Allergan’s bylaws included onerous requirements for shareholders to bring a special meeting, effectively making it impossible for Pershing Square to call the vote. These bylaws mandated that a shareholder disclose all of its associates, defined as “any person, property, or entity in which they hold a stake of more than 10 percent.”  All associates were then treated as if they were also making the proposal, and were subjected to extensive disclosure requirements. 4

Allergan’s surrender to the agreed upon meeting was likely prompted in part by Chancellor Bouchard’s criticism of the restrictive bylaw, describing it as a “horse-choker of a bylaw.” 5   Chancellor Bouchard’s reaction signaled intolerance for corporate defense mechanisms that favor management at the expense of restricting shareholder rights.  Although Allergan defended its bylaws as necessary to prevent abuses by shareholders with economic motives misaligned with the corporation’s, they reached a settlement on the issue, foregoing the chance to defend these measures in the Delaware Chancery court.6

The companies are still embroiled in an ongoing takeover battle; Allergan is seeking an injunction in California to prevent Valeant and Pershing Square’s 9.7% stake from being counted in the vote, alleging that the pair engaged in pre-bid insider trading. 7 Although this agreement between the three parties means that the bylaw question will not be decided by the Delaware court, Chancellor Bouchard’s reaction signals broader implications for Delaware corporations seeking to protect management by limiting shareholder participation.


  1. Steven Davidoff Solomon, Allergan-Valeant Fight Holds Lessons for All Corporate Shareholders, N.Y. Times (Sept. 18, 2014, 4:05 PM), http://dealbook.nytimes.com/2014/09/16/allergan-agrees-to-hold-meeting-that-could-lead-to-takeover/. 

  2. Id. 

  3. Alison Frankel, Allergan Restrictions on Shareholders’ Meetings Were Too Tough To Swallow, Reuters (Sept. 16, 2014), http://blogs.reuters.com/alison-frankel/2014/09/16/allergan-restrictions-on-shareholders-meetings-were-too-tough-to-swallow/. 

  4. Steven Davidoff Solomon, In Botox Maker Fight, Focus on Clever Strategy Overshadows the Goal, N.Y. Times (Aug. 12, 2014, 6:19 PM), http://dealbook.nytimes.com/2014/08/12/in-allergan-fight-a-focus-on-clever-strategy-overshadows-the-goal/. 

  5. See Solomon, supra note 1. 

  6. Frankel, supra note 2. 

  7. David Benoit, Pershing Square and Allergan Reach Settlement on Litigation over Special Meeting Date, Wall St. J. (Sept. 16, 2014, 12:14 AM), http://online.wsj.com/articles/pershing-square-and-allergan-near-settlement-on-litigation-over-special-meeting-date-1410837969.