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The Morning Brief: Ackman’s Pershing Square Wins Big on Actavis-Allergan Deal

Allergan finally agreed to a merger…with Actavis. The deal, which the two companies say will create one of the ten largest pharmaceutical companies as measured by revenue, ends for now any hope for Valeant Pharmaceuticals International to succeed with its hostile bid to buy Allergan, pursued jointly with William Ackman’s Pershing Square Capital Management. Actavis will plunk down $219 per share in cash and stock for the Botox maker, which works out to about $66 billion. The two companies said the combination will result in synergies of at least $1.8 billion.

The deal is a huge victory for activist hedge fund manager Pershing Square, which owns nearly 29 million shares of Allergan. The New York firm made $2.5 billion on the stock even after sharing 15 percent of its profits with Valeant, according to Bloomberg. Despite the apparent deal, CNBC reported that Pershing Square still plans to move ahead with its planned special meeting of Allergan shareholders, scheduled for December 18. In a statement, Valeant said it does not plan to top Actavis’s offer, asserting: “Valeant cannot justify to its own shareholders paying a price of $219 or more per share for Allergan.”

Pershing Square is not the only hedge fund with a significant stake in Allergan. Other top-ten shareholders include John Paulson’s Paulson & Co. — even after it unloaded nearly 225,000 shares in the third quarter — and Daniel Och’s Och-Ziff Capital Management, which boosted its stake by more than 1.3 million shares in the third quarter.

In the third quarter, several hedge fund firms also built big positions in Actavis, whose stock also rose on the news, by more than 1 percent. In fact, Och-Ziff was the company’s seventh largest shareholder after adding more than 1.65 million shares during the period. Other large hedge fund holders who added to their stakes in the third quarter include Daniel Loeb’s New York-based Third Point and O. Andreas Halvorsen’s Greenwich, Connecticut-based Viking Global Investors. Meanwhile, Jamie Dinan’s New York-based York Capital Management took an initial stake of 1.25 million shares, while Robert Citrone’s South Norwalk, Connecticut-based Discovery Capital Management nearly quadrupled its stake.

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Sandell Asset Management chief executive officer Thomas Sandell sent a letter to shareholders of JDS Uniphase Corporation calling on them to join it in voting against the election of existing director nominees Thomas Waechter, the company’s chief executive officer, and Martin Kaplan, who serves as chairman of JDS’s Governance Committee, at the upcoming annual meeting. Sandell also criticized the maker of fiber optic networking equipment for announcing the date of its annual meeting with exactly 60 days notice, which “rendered it effectively impossible” for the New York activist hedge fund firm from submitting director nominations in time since JDS Uniphase’s bylaws require director nominations to be submitted at least 60 days prior to the meeting, according to Sandell.

He also lauded the company’s recent decision to spin off its optical components and commercial lasers company (CCOP), but stressed it “must do much more” to deliver value. Sandell criticized the company for excluding its proposal for the proxy that would “empower” shareholders to have a more direct say in what further steps the company would take to boost its stock price. “We believe that shareholders are upset that the company did not pursue a more expansive process to unlock value,” Sandell adds in the letter. He calls on the company to sell CCOP outright, stressing that there are several potential buyers who would be interested.

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A number of hedge funds were apparently hit hard when AbbVie abruptly cancelled its $54 billion deal to acquire Shire, the Irish biopharmaceutical firm whose stock plummeted more than 30 percent in one day in October. For example, by far the largest shareholder was Paulson & Co. after the firm lifted its stake by about 170 percent. Boston-based Adage Capital Management was the second largest shareholder after taking an initial stake of more than 3.2 million shares, while Alec Litowitz’s Evanston, Illinois-based Magnetar Capital was the fifth largest shareholder after taking an initial stake of more than 2.4 million shares, making it the hedge fund firm’s largest holding. It also hedged some of this position with put options, according to filings. Other large buyers of the stock in the third quarter included Kenneth Griffin’s Chicago-based Citadel and Daniel Loeb’s New York-based Third Point. Since bottoming, the stock has rebounded by about 20 percent.

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Hedge funds suffered their sixth monthly loss of the year in October, dropping 0.45 percent for the month, according to London-based Preqin. As a result, its Hedge All Strategies and Regions benchmark is up just 2.92 percent for the year. Preqin cited overall market volatility and the impact of the Fed’s winding down of its quantitative easing program for this year’s mediocre performance. Last year at this time, the hedge fund benchmark was up 9.58 percent for the year. Event-driven strategies lost 1.40 percent in October after dropping 2.04 percent the prior month.

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Stanley Fink’s London-based International Standard Asset Management is launching a foreign-exchange brokerage, according to Bloomberg. It will be called IS Prime, which will offer prime brokerage, traditional and non-traditional liquidity and risk-management solutions, according to the report, citing an e-mailed statement from ISAM. Fink resigned as deputy chairman of London-based Man Group in July 2008 after spending more than 21 years at the firm, which runs hedge funds and traditional asset management portfolios. ISAM, known for its computer-driven hedge funds, is among the top performers in what has become a huge recovery year for so-called systematic funds. So far this year, ISAM Systematic is up “close to 30 percent” while ISAM Quantitative Strategies is up 20 percent, according to Bloomberg, citing a statement from Fink.

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