Valeant and Mr. Ackman filed a lawsuit Friday—the latest legal front to be opened in the increasingly bitter fight—requesting that a judge order Allergan to hold a special meeting that could oust the majority of the board before the year is up.
The Delaware lawsuit follows the duo's official request for a special meeting, a step they took late Friday, when they delivered to Allergan's Irvine, Calif., headquarters a pile of some 1,500 pages detailing the support they have from the company's shareholders. Valeant and Mr. Ackman's activist hedge fund Pershing Square Capital Management LP said they have the backing of almost 31% of Allergan's shares outstanding, or more than the required 25%.
Valeant and Pershing Square, which owns a 9.7% stake in Allergan, have been trying to buy the company since April. Allergan has rebuffed their offers, declined to enter into negotiations and filed a lawsuit of its own in federal court alleging that Valeant and Mr. Ackman violated insider-trading regulations, accusations the two deny.
Allergan has also said publicly that it's considering a major acquisition of its own, which could frustrate the takeover bid by making Allergan too large for Valeant to swallow.
Allergan has approached Salix Pharmaceuticals Ltd. about such a deal, The Wall Street Journal has reported.
Allergan has 120 days to set the meeting, but legal wrangling over the validity of the request could delay the meeting until 2015, people on both sides say. In their lawsuit, Valeant and Mr. Ackman seek a ruling that their requests are legitimate and say they are concerned Allergan will move to make its own deal before shareholders have voiced their opinion. The lawsuit asks the judge to force Allergan to have its special meeting before any such deal is reached.
The special meeting is a necessary step for the hostile takeover to be completed as Valeant and Mr. Ackman would use it to try to remove a majority of Allergan's directors.
The attempt to inject more urgency into the process comes as Valeant's stock continues to drop amid uncertainty over its ability to pull off the deal. While the stock rose 3% on Friday, it's down 12% over the past three months.
The more Valeant's shares decline, the more the value of the cash-and-stock bid drops. As of Friday, the offer was valued at only about $169 a share, down from $180 a share when it was announced in late May.
Allergan said in a statement Friday that it would review the meeting-request material but reiterated that Valeant's takeover bid remains too low. Shareholders requesting a meeting didn't weigh in on the merits of the proposed deal itself, the company added.
Allergan also called the lawsuit "premature" as the board hasn't yet had a chance to determine what it will do with the so-called consents from shareholders seeking a meeting.
The suit and the delivery of the consents, a relatively bland procedural event in most shareholder campaigns, will open a new stage of bickering in this already contentious takeover fight. Earlier in the process, Mr. Ackman sought a judge's ruling to ensure that collecting the shareholder support wouldn't trigger Allergan's takeover-defense mechanisms. The sides eventually settled that matter and Mr. Ackman was able to proceed.
Mr. Ackman had expected to cross the 25% threshold in the middle of August, but Allergan's corporate bylaws require shareholders to clear several hurdles to call a special meeting, slowing the process somewhat.
One shareholder's package, for example, is 174 pages thick and bears 85 signatures. Another shareholder had to pay $16,000 to comply with one part of the rules, the lawsuit said.
The complexity of the documents required to call the meeting left Valeant and Pershing Square unsure of the final tally of shares they could count on hours before submitting the requests Friday, according to people close to the process. More support for a special meeting could still trickle in, Valeant and Mr. Ackman said.
The Allergan bylaws, especially a rule that requires consenting shareholders to hold their stock until the time of the meeting for their votes to count, discouraged some investors from participating, Mr. Ackman and Valeant said.
Some mutual funds, especially those with positions that are supposed to mirror stock indexes, can't legally put limits on their trading. Hedge funds, meanwhile, like having the flexibility to move in and out of positions fast. As a result, some Allergan holders didn't participate in the special-meeting campaign even though they support the deal, people close to the funds said.
Allergan's complex rules, which proxy-advisory firm Glass Lewis & Co. called "disproportionately time consuming and dense," galvanized others. Allergan said that some shareholders told the company they were consenting only to fight the bylaws.
Valeant and Mr. Ackman are also seeking to change the bylaws at the special meeting and asked the judge to declare them invalid in Friday's suit.
Allergan, which said its bylaws are reasonable, has begun asking shareholders to withdraw their consents, sending its own forms. But Valeant and Mr. Ackman contend those forms are less complicated than the meeting-request forms. "In contrast to the several dozen page special meeting request, Allergan contends that shareholders may revoke those consents by checking a box," the lawsuit said. http://tinyurl.com/lc6mse3