Ackman Urges Allergan Board to Begin Deal Talks With Valeant

Two weeks after unveiling an audacious partnership with Valeant Pharmaceuticals to take over the maker of Botox, the hedge fund billionaire William A. Ackman is getting to work.

Mr. Ackman sent a letter to the board of Allergan on Monday, urging the company to begin acquisition talks with Valeant. And he warned Allergan not to try other alternatives, including a deal with another drug maker, if they don’t generate as much value for shareholders.

Mr. Ackman’s move is the most significant since he unveiled a 9.7 percent stake in Allergan in late April.

“As Allergan’s largest shareholder, we are supportive of Allergan making the best possible deal with Valeant or identifying a superior transaction with another company,” he wrote in his letter. “Given the short list of potential acquirers and Valeant’s willingness to negotiate quickly, we believe Allergan can explore its strategic alternatives and determine a course of action within a matter of weeks.”

Mr. Ackman argued that at the moment, Allergan is in a good position to negotiate with Valeant because it can try to fetch potentially higher offers from other drug companies. But he cautioned that the list of potential buyers â€" those willing to pay an appropriate price and able to avoid antitrust risk â€" was relatively small.

“Unless Allergan were to identify such a transaction in the very near future, the odds of such a deal are likely to decrease over time, and the market and Valeant will likely learn of the lack of interest from alternative companies,” the activist investor wrote.

“Valeant management has publicly acknowledged it understands this dynamic and has even suggested it would consider reducing its offer if Allergan does not engage and no alternative suitor emerges.”

Mr. Ackman also addressed rumors that Allergan was considering buying a drug maker based in another country and then moving its legal domicile overseas in what is known as an “inversion.” He wrote that he considered such a move less likely to create more value than Valeant’s takeover proposal.

Shares in Allergan were down 0.5 percent in afternoon trading on Monday, at $169.02.