Behind Bill Ackman’s deal for Botox maker Allergan

April 22, 2014, 9:24 PM UTC
ValueAct’s Jeff Ubben

FORTUNE — The proposed acquisition of Botox maker Allergan by eyecare pharmaceutical company Valeant appears to be driven by activist hedge fund investor Bill Ackman, of Herbalife fame.

But, in fact, the deal has two activist-investor backers, not one.

Jeff Ubben of ValueAct says he has been pushing for the acquisition for almost a year, and he backs it now. “It’s a great combination,” says Ubben, speaking at IMN’s Active-Passive Investor Summit in New York. “The deal was our idea. Ackman came up with the structure.”

Ubben’s ValueAct owns $2.3 billion worth of Valeant shares, and his partner Mason Morfit is on Valeant’s board. Ubben says Valeant approached Allergan about a combination last year, but was rebuffed. Then in February, Ubben says Ackman approached Valeant about an investment.

Ubben says Ackman was initially interested in investing in Valeant, but Valeant’s (VRX) management told Ackman they were interested in Allergen. Ackman agreed to help, came up with a deal structure, and then started to build up his stake in Allergan (AGN). Ackman now owns 9.7% of Allergan.

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Ubben says Ackman is in a great position. Shares of Allergan are already up 16% on the deal. If the deal goes through, Ackman will get to buy more Valeant shares at a discount. If the deal doesn’t work out, Ackman’s Pershing Square has to pay Valeant a break-up fee, but only if Allergan gets bought by someone else for more, which will make Ackman’s Allergan stake worth more. Either way, Ackman benefits from knowing about the Allergan deal first, or being a part of it, depending on how you look at it. In return, Ackman has promised to roll his Allergan stake into Valeant. News of the deal has pushed Valeant stock up by nearly 7% since yesterday, so Ubben is not in such a bad spot either.

Some have suggested that it is unusual that Valeant or any company would be so receptive to working with Ackman. Corporate executives and activist investors have not always got along. But Valeant’s history with Ubben may help explain the situation. ValueAct has held a stake in Valeant for more than five years, backing a number of other deals. Ubben says with Ackman’s involvement his firm is likely to take a step back from Valeant. His partner Morfit is not seeking reelection on Valeant’s board. Valeant is currently ValueAct’s second-largest position. Ubben also says that he had no immediate plans to sell, but he declined to say why he didn’t back the Allergan acquisition instead of Ackman. “I will let my actions speak louder than my words,” says Ubben.

ValueAct has been one of the best performing hedge funds of the past year, and its main fund was up by nearly 30% in 2013. Last year, it took a big stake in Microsoft and played a role in the resignation of Steve Ballmer.

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