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Pershing Square can go ahead with its call for Allergan shareholder meeting

Pershing Square Capital Management will begin to seek support from Allergan shareholders to call a special meeting to remove six directors after reaching a deal that ensures the Botox maker's poison pill defence from a hostile takeover bid isn't triggered.

The activist investment firm, which controls a 9.7 per cent stake in Allergan, is teamed up with Valeant Pharmaceuticals (TSX:VRX) in the company's hostile takeover attempt.

"This resolution provides the clarification we were seeking to allow Allergan shareholders to proceed with the process of calling a special meeting without fear of tripping the pill," Pershing chief Bill Ackman said in a statement.

Investors holding 25 per cent of Allergan's shares need to support the call for a special meeting for one to be held.

The agreement avoids a trip to court for the companies after Pershing Square sued Allergan, arguing that the company's bylaws were making it difficult to gather the required support.

"The rights agreement was drafted in a manner to allow Allergan stockholders to seek to call a special meeting, and the stipulation simply makes it clear how the bylaws and the rights agreement work together," Allergan said in an email.

Quebec-based Valeant said the settlement ensures that Pershing's efforts to call a meeting won't further be delayed.

"We remain committed to the value-creating combination of Valeant and Allergan and are moving forward with our exchange offer," said spokeswoman Laurie Little.

Analyst Alex Arfaei of BMO Capital Markets said the deal puts Valeant "another step closer" in its pursuit of Allergan.

He said with hedge fund manager John Paulson's reported recent support of a deal, Valeant and Pershing need about another 13 per cent to call the special meeting.

"Given the significant overlap in Valeant and Allergan investors, we continue to believe that Valeant and Pershing Square should eventually be successful in their attempts to gain support from 25 per cent of Allergan shareholders to call the special meeting in an attempt to change the Allergan board," he wrote in a report.

Valeant chairman and CEO Michael Pearson has said that at least 20 per cent of Allergan shareholders are owned by arbitrage investors and hedge funds who are likely supportive of a deal.

Allergan has repeatedly refused to meet with Valeant to discuss its more than US$50-billion stock-and-cash bid.

It says the US$72 in cash and 0.83 of a Valeant share for each Allergan share offered undervalues the company and creates significant risks and uncertainties for its shareholders.

Allergan and Valeant's shares were up in Friday trading. Allergan's shares gained $1.65 at $172.20 in afternoon trading on the New York Stock Exchange, while Valeant shares gained $1.66 at US$128.16.

In Toronto, Valeant shares were up $1.27 at C$136.56.

Follow @RossMarowits in Twitter.

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