Alison Frankel has the details on pending litigation involving claims that "pharmaceutical company Valeant’s partnership with Bill Ackman’s Pershing Square in a bid for Allergen" involved illegal insider trading. Raider-activist alliances must surely rank very high on target management's list of nightmare scenarios, but as Frankel points out:
Pershing’s Allergan profit was the product of the stealth it maintained by acquiring shares through options deals that carried the added benefit, under Pershing’s thinking, of insulating the hedge fund from insider trading liability to Nomura counterparties. Judge Carter’s decision strips away the insulation, putting Pershing’s profit at risk.
If hedge funds can’t count on short-term profits from stealth partnerships with hostile bidders, why team up with them? For the longer term? Just ask Ackman how that’s working out for him and Valeant.
