Bill Ackman's Big Takeover Deal May Be Spinning Out Of His Hands, And He's Threatening To Sue

For months Bill Ackman has been working with the pharmaceutical company Valeant to acquire its peer, Allergan. But with the news that Allergan might acquire another pharmaceutical company, Ackman's plans may be ruined - and he threatened to sue Allergan over that in a strongly worded letter.

"We have read published reports that you are negotiating a substantial highly leveraged acquisition that would not require shareholder approval in an attempt to preclude a transaction with Valeant Pharmaceuticals," said the letter, published by ValueWalk. "This action would directly contradict your repeated published statements ... If you take such action, we will immediately bring litigation against you (and any counter-party that aids and abets you) for breach of fiduciary duty. "

Together, Allergan and this new company in the game, Salix, are too expensive for Valeant and Ackman to buy. So if the two companies get together, that's game over for Ackman and Valeant's over $45 billion deal.

That is why Ackman is threatening to take Allergan to Court. He's saying that if Allergan acquires Salix, it is violating its promise to allow shareholders to vote on the deal he wants to do with Valeant. That vote would take place Dec. 18.

Allergan released a statement countering Ackman's letter that said - in so many words - we've got this, but thanks for the threats.

"While we do not comment on rumors or speculation," Allergan's statement said, "we do note that the Allergan Board continues to conclude that Valeant's bid for Allergan is grossly inadequate and substantially undervalues Allergan. The Allergan Board is well aware of its fiduciary obligations and, in that context, is focused on enhancing value for all stockholders, unlike Mr. Ackman who is financially incentivized to deliver Allergan to Valeant at the lowest possible price."

Allergan has put hurdle after hurdle up before Ackman and Valeant since the allies announced that they intended to purchase Allergan this spring. Earlier this year it sued them for insider trading over the way the deal went down.

"This case is about the improper and illicit insider-trading scheme hatched in secret by a billionaire hedge fund investor on the one hand, and a public-company serial acquirer on the other hand," read Allergan's complaint. "... The method the defendants chose was to operate in secret, flouting key provisions of the federal securities laws designed to protect investors from precisely this type of predatory conduct."

The SEC then launched its own investigation into the matter.

The crux of all of this is a debate as to whether Valeant - not Allergan - is a viable company. Valeant bills itself as an innovative company that has learned how to grow organically by acquiring smash-hit products and cutting research and development costs.

Allergan perfectly fits that bill, as it is the maker of Botox and Lattice.

But there is a darker side to that story. Investors like short-seller Jim Chanos think Valeant is an accounting rollup, a company that needs to acquire other companies to appear healthy and hide losses in its balance sheet.

That could be why, from the beginning, Ackman and Valeant have stressed the importance of getting this deal done ASAP. Meanwhile, Allergan has - for all intents and purposes - stalled.

Back in July, Ackman's fund did a presentation on the deal and a listener asked Ackman a simple question. Why not wait to do the deal and let the Bausch & Lomb acquisition annualize to show that it is growing organically? Valeant had, after all, said that it was confident that Bausch & Lomb would continue "to deliver organic growth of >10% ... for the remainder of 2014."

Ackman replied that it wouldn't be fair for shareholders to let a deal like the one he and Valeant had put on the table pass them by.

If Allergan acquires Salix, though, shareholders will have no problem laughing Valeant and Ackman off.

And Valeant will have to find some other superstars to add to its product line.