The hedge fund billionaire William A. Ackman may be plotting his next big stock move, even as he is on the media circuit explaining his decision to partner with Valeant Pharmaceuticals to make a $45.6 billion hostile bid for the Botox manufacturer Allergan.
In amassing its 9.7 percent stake in Allergan, Mr. Ackman’s Pershing Square Capital Management used a corporate entity that his $15 billion hedge fund formed in Delaware on Feb. 11 to buy shares and call options â€" a financial contract that gives the hedge fund the right to buy shares at predetermined price. Over a two-month period, the entity, PS Fund 1, used a combination of cash contributed by Pershing Square and Valeant, to build an equity position in Allergan that’s valued at about $4 billion.
But corporate records in Delaware reveal that on the same day that Pershing Square organized PS Fund 1, four other entities bearing the names PS Fund 2, PS Fund 3, PS Fund 4 and PS Fund 5 were also created.
Pershing Square, which was up nearly 11 percent for the year at the end of March, has not filed any regulatory statements disclosing any stock or options purchases with those other corporate entities.
Mr. Ackman said in an email that the corporate subsidiaries would not be used to purchase any more shares or options of Allergan but might be used to build equity stakes in other publicly traded companies. At a news conference on Tuesday to discuss the Allergan bid, Mr. Ackman said he was looking forward to partnering with Valeant again in another transaction but declined to discuss specifics.
Since at least 2010, Mr. Ackman’s hedge fund, which specializes in taking large ownership stakes in companies to agitate for either stock buybacks or strategic changes, has used similar corporate subsidiaries to acquire shares or options in companies that were targets of his firm. A review of Delaware corporate filings reveals at least three dozen subsidiaries created by his firm to be used in stock acquisitions over the past four years, most of them with some variation of the name: Pershing Square Holdco.
In 2013, to quickly build a 9.8 percent equity position in shares of Air Products and Chemicals, an industrial gas company, Mr. Ackman’s firm used seven of those Delaware holding companies, most of which were incorporated in June. And in 2010, he employed a similar strategy to build a large stock position in Fortune Brands, a conglomerate that manufactured liquor and home products, which Mr. Ackman successfully pushed to be broken up to maximize shareholder returns.
It’s not clear why Mr. Ackman’s firm has used subsidiary companies to buy shares in some of the companies it intends to take an aggressive activist stance in. Over the years, he has declined to discuss the strategy.
In amassing the nearly 10 percent equity stake in Allergan, Mr. Ackman’s hedge fund moved quickly to fall within the 10-day regulatory deadline for disclosing a 5 percent or greater ownership stake. Some lawyers and financial commentators have argued that the 10-day period is obsolete, given how fast shares can be bought and sold in today’s computer-driven marketplace. But for now, the rule remains in effect.
The Pershing Square subsidiaries do appear to be generally limited use investment vehicles. The various subsidiaries have been used to buy either shares or options in specific companies. So far, Pershing Square has not used a subsidiary to make purchases in multiple companies.
One subsidiary, Pershing Square Holdco C, which was used in connection with the hedge fund’s acquisition of shares in Fortune Brands, ran afoul of the tax man. In June 2013, the Internal Revenue Service filed a tax lien against the subsidiary, claiming it owed the federal government $96,987.34 in unpaid taxes from 2011. In January, the I.R.S. filed a second lien for an additional $4,680 in unpaid taxes.
Mr. Ackman’s hedge fund contends that the lien was filed in error and should be removed. The fund said that on the advice of its accountants at Ernst & Young, it filed amended tax returns with the I.R.S. last summer in hopes of resolving the matter. But as of this week, the lien was still in place and Mr. Ackman’s fund said it had been unable to get more information from the I.R.S. about the disputed amount.
“Apparently the IRS is a government-run bureaucracy,†Mr. Ackman said in an emailed response.
Michael J. de la Merced contributed reporting.
