A California court hearing two insider trading class actions brought by former investors in multinational drug company Allergan against Canada’s Valeant and New York investment fund Pershing Square has given provisional approval to a US$290 million settlement between the parties.

In two orders handed down on 19 March, California Central District Court Judge David Carter granted motions by Allergan investors to approve the settlement and scheduled a hearing for 30 May.

The two lawsuits, filed by different classes of Allergan investors led by Anthony Basile and Connecticut-based Timber Hill, respectively, brought insider trading allegations against Valeant and its CEO Michael Person and Pershing and its owner Bill Ackman, claiming that the Canadian company secretly notified Pershing of its plans to launch a hostile takeover of Allergan, the maker of Botox, in 2014.

The investors alleged that a Pershing funding vehicle named “PS Fund 1” bought more than 14 million Allergan shares at just under US$118 a piece based on Valeant’s tip off. The acquisitions were allegedly part of a scheme hatched by Ackman and Pearson whereby Pershing would buy up 10% of  Allergan’s stock and commit the shares to support Valeant’s takeover. “Ackman knew that once Valeant publicly disclosed its offer to buy Allergan at a substantial premium, Allergan’s stock price would immediately increase and deliver Pershing billions of dollars in short-term profits,” the Timber Hill complaint alleged.

After Valeant’s bid put Allergan in play for other acquisition proposals, generic company Actavis submitted a rival bid of US$219 per share, beating Valeant’s original offer of US$200. However, the complaint said, Ackman and Pearson’s scheme proved a “rousing success” despite the failed acquisition. “After splitting up the proceeds and paying Valeant its approximately $400 million cut, Ackman walked away with over $2.2 billion in pure profit,” Timber Hill claimed.

While Ackman maintained the suits had “no merit”, in December 2017 he put forward a proposal to pay over US$193 million, alongside US$96.25 million from Valeant, to bring the case to a close. “We decided…that it was in the best interests of our investors to settle the case now instead of continuing to spend substantial time and resources pursuing the litigation” he said in a statement.

Under the settlement agreement, which both plaintiffs filed motions in support of in January, US$250 million will go to Basile and his investor class, while the remaining US$40 million will go to satisfy Timber Hill and similarly situated investors’ claims.

“Given the sparse guidance pertaining to key issues in this litigation, the derivatives class’ future recovery, were the case to be litigated to judgment, is, to say the least, uncertain,” Timber Hill said in its motion. “This settlement achieves certainty and finality in what has been – and would continue to be – a very hard fought case.”

In the United States District Court for the Central District of California, Southern Division

Anthony Basile et al v. Valeant Pharmaceutical International, Inc. et al

  • Judge David Carter

Counsel to Anthony Basile

  • Bottini and Bottini

Francis Bottini, Albert Chang and Yury Kolesnikov in La Jolla, California

Counsel to Pershing

  • Kirkland & Ellis

Michael Shipley, Jay Bhimani, Robert Boldt, Tanya Greene, Mark Holscher and Austin Norris in Los Angeles

Counsel to Valeant

  • Hueston Hennigan

John Hueston, Moez Kaba, Allison Libeu and Steven Feldman in Los Angeles

Timber Hill LLC v. Pershing Square Capital Management, L.P. et al

  • Judge David Carter

Counsel to Timber Hill

  • Susman Godfrey

Amanda Bonn, Krysta Pachman, Edgar Sargent, Marc Seltzer and Steven Sklaver in Los Angeles

  • Entwistle and Cappucci

Andrew Entwistle, Robert Cappucci, Vincent Capucci, Arthur Nealon and Brendan Brodeur in New York 

Counsel to Pershing

  • Kirkland & Ellis

Michael Shipley, Jay Bhimani, Robert Boldt, Tanya Greene, Mark Holscher and Austin Norris in Los Angeles

Counsel to Valeant

  • Hueston Hennigan

John Hueston, Moez Kaba, Allison Libeu and Steven Feldman in Los Angeles