## Facts

- Valeant sought to acquire Allergan through a tender offer and partnered with Pershing Square, an activist hedge fund.
- The parties formed a special-purpose vehicle (PS Fund 1) to accumulate Allergan shares before Valeant publicly disclosed its acquisition plans.
- Between February and April 2014, before public disclosure, PS Fund 1 acquired nearly 10% of Allergan’s outstanding stock.
- During the same period, an Allergan employee-shareholder (Parschauer) bought Allergan stock without knowledge of Valeant’s nonpublic plans.
- Valeant later publicly announced its interest and, in June 2014, commenced a tender offer with Pershing’s support.
- Allergan and Parschauer alleged that Pershing traded while in possession of material, nonpublic tender-offer information received from Valeant, violating Exchange Act § 14(e) and SEC Rule 14e-3.
- Pershing argued it was a “co-offeror” (part of the “offering person”) and therefore not an “other person” subject to Rule 14e-3(a)’s disclose-or-abstain restriction.

## Issues

1. Whether Pershing’s preannouncement purchases, made after Valeant had taken substantial steps toward a tender offer and while Pershing possessed material, nonpublic tender-offer information, likely violated SEC Rule 14e-3.
2. Whether Pershing’s contractual characterization as a “co-offeror” removed it from Rule 14e-3(a)’s coverage as an “other person.”
3. Whether preliminary injunctive relief was warranted under the governing federal standard based on likelihood of success, irreparable harm, balance of equities, and public interest.

## Decision

- The court granted plaintiffs’ motion for a preliminary injunction in part and denied it in part.
- The court rejected Pershing’s broad contention that contractual “co-offeror” labeling exempted its trades from Rule 14e-3(a).
- The court found plaintiffs showed a sufficient likelihood of success that Pershing was an “other person” who traded on material, nonpublic tender-offer information after substantial steps toward a tender offer had been taken.
- The court imposed targeted restrictions aimed at mitigating the effects of the challenged trading, including limits tied to Pershing’s use of shares acquired during the relevant period.
- The court declined to grant the full set of requested restraints, seeking to limit interference with shareholder choice and the takeover contest.

## Legal Principles

- Rule 14e-3 can impose a disclose-or-abstain obligation on persons who trade while in possession of material, nonpublic tender-offer information obtained from an offering person after substantial steps toward a tender offer.
- “Offering person” status for Rule 14e-3 purposes is a functional, legal determination; private party labeling (e.g., “co-offeror”) is not controlling.
- Section 14(e) and Rule 14e-3 are construed to protect investors and the tender-offer process from informational advantages and structurally advantaged trading tied to a contemplated bid.
- Preliminary injunction relief may be appropriate where alleged securities-law violations threaten noncompensable effects on corporate control and shareholder voting during ongoing takeover activity.

## Conclusion

The court partially restrained the bidder–hedge fund alliance’s ability to benefit from preannouncement share accumulation, concluding that plaintiffs were likely to succeed on a Rule 14e-3 theory and that tailored interim limits were warranted while the takeover contest and litigation proceeded.


Allergan, Inc. v. Valeant Pharms. Int’l, Inc., 2014 U.S. Dist. LEXIS 156227 (C.D. Cal. Nov. 4, 2014)