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Top hedge funds flocked to Allergan amid bid backed by Ackman

By Svea Herbst-Bayliss

BOSTON (Reuters) - Billionaire investor William Ackman, who often says he is flattered when others follow him into a stock he likes, was joined by several prominent hedge funds that made new bets on takeover target Allergan Inc during the second quarter.

Regulatory filings released on Thursday give the first comprehensive look at Allergan's redrawn shareholder map since Ackman and deal partner Valeant Pharmaceuticals Inc made public their pursuit of the Botox maker in late April. And while the data, released in so-called 13-F filings, is backward looking and could have changed in the 45 days since the end of the quarter, investors say that it gives at least a strong flavor for what savvy investors are thinking.

Ackman's Pershing Square Capital Management disclosed a 9.7 percent stake in Allergan at the time. By the end of June, John Paulson's Paulson & Co, Jamie Dinan's York Capital Management and Andreas Halvorsen's Viking Global Investors had also bought in, according to the documents released by the U.S. Securities and Exchange Commission.

The filings show that several large mutual fund firms that already owned Allergan made even bigger bets during the quarter. T. Rowe Price, for example, more than doubled its position, although it did not say exactly which funds owned the shares.

Paulson's moves have been tracked closely by investors since his winning bet against the overheated U.S. housing market. He has publicly supported Valeant's bid for Allergan, now worth about $49 billion. But many other shareholders have been silent and it was not clear who else had gotten in or gotten out.

In the last weeks, the fight for Allergan has become even more bitter. Proxy advisory firms are urging its shareholders to support Ackman's call for a special meeting to consider a deal.

Yet one of Valeant's top shareholders, hedge fund ValueAct Capital Management, suggested that Valeant may not be able to afford a drawn-out, damaging fight.

Allergan charged in a lawsuit filed earlier this month in California that Pershing Square broke insider trading laws when setting up its partnership with Valeant. Now U.S. securities regulators are asking questions about the planned takeover, a person familiar with the matter said on Thursday.

Thursday's filings show that York Capital Management bought 2.4 million shares of Allergan during the quarter. York also bought put options on Allergan. Eric Mindich's Eton Park Capital Management said it owned 901,000 shares while Viking Global Investors reported owning 803,369 shares. Viking also raised its bet on Valeant by buying an additional 2.5 million shares.

Other new owners include Farallon Capital Management, founded by Tom Steyer and now run by Andrew Spokes, which said it owned 612,500 shares. Hoplite Capital Management also opened a new position and owned 625,850 shares.

Sachem Head Capital, run by Scott Ferguson who left Ackman's firm in 2012 to open his own shop, also bought in, opening a new position with 490,000 shares. Ferguson also opened a new position in Valeant with 419,500 shares.

Investors who exited or cut their positions include Capital Research Global Investors, which ranked as Allergan's second-largest shareholder at the end of the first quarter but sold out its holdings during the second quarter. Hedge fund Jennison Associates cuts its position by more than half, selling 6.2 million shares while Montag & Caldwell sold 1.3 million shares, cutting its stake by 36 percent.

The decision to buy in at that time paid off big as Allergan's stock price surged 38 percent in the second quarter.

Since then the share price has come under some pressure. The spread on the deal - or the difference between the value of the two companies' shares and the ratio implied by the deal's terms - has widened slightly to about 5.2 percent from less than 3 percent earlier this week after a key Valeant shareholder questioned the deal's logic.

Some investors have said that Allergan's share price suggests the deal may have less of a chance of getting done now. But several investors told Reuters this week they expect that Ackman will succeed in attracting enough support to call the special shareholder meeting where shareholders will get their first chance to say what they think about the deal.

(Additional reporting by Caroline Humer, Olivia Oran and Soyoung Kim in New York; Editing by Michele Gershberg and Lisa Shumaker)

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