Bill Ackman continues to fight for Valeant Pharmaceuticals Intl Inc (NYSE:VRX) (TSE:VRX) as it pursues an acquisition of Allergan, Inc. (NYSE:AGN). In a webcast this morning, he called Allergan’s bylaws “unduly onerous and anti-shareholder,” as well as “dangerous.”

Allergan

Ackman attacks Allergan’s bylaws

The Pershing Square Capital Management chief reiterated to listeners that they still want to hold a special meeting to “fix” Allergan’s bylaws and remove directors and propose new ones. Ackman believes the drug maker’s current board members aren’t trying to understand the material presented by Valeant Pharmaceuticals Intl Inc (NYSE:VRX) (TSE:VRX) and said that Allergan, Inc. (NYSE:AGN) continued to make misleading statements about Valeant.

He noted that shareholders requested better corporate governance a few years ago but says they essentially didn’t get a fair shake. The hedge fund manager added that now Allergan is trying to keep Pershing Square from holding a shareholder meeting. He said the board refuses to meet with them and has made the entire process more difficult than most companies’ processes for holding special meetings.

ISS guidelines for special meetings

He pointed to the views of the influential shareholder advisory firm Institutional Shareholder Services. The firm states that shareholders must be able to call “timely special meeting.” If they are unable to do so, ISS has stated in the past that shareholders may become “powerless to respond to beneficial offer if a bidder cannot call a special meeting.” The firm also states that when it comes to poison pills, shareholders may have to replace a company’s board just to look at offers.

And if shareholders can’t hold a special meeting, they may have to wait up to a year or even more in some cases.

Allergan shareholders “deprived” of special meeting?

Allergan, Inc. (NYSE:AGN) CEO David Pyott has reportedly said that shareholders don’t want to see a merger with Valeant Pharmaceuticals Intl Inc (NYSE:VRX) (TSE:VRX), but Ackman said they haven’t heard any shareholder argue in favor of that. He feels shareholders have been deprived of their right to hold a special meeting and stated that Allergan has historically used “procedural restrictions to neuter mechanisms for shareholder action.”

For example, he said in 2012, shareholders wanted the right to be able to call special meetings with 10% of the vote, which is about in line with most other companies. ISS was in favor of that, but Allergan’s board granted the right with 25% of the vote. Then in 2013, they wanted the right to act by written consent. Again, ISS was for it, but Allergan’s board was against it. This year, shareholders requested that Allergan separate the chairman and CEO boards. ISS was again for it, but management was against it.

What it takes to call a special meeting at Allergan

Ackman believes that Allergan, Inc. (NYSE:AGN) has placed unnecessary restrictions on shareholders who want to call a special meeting, even making it nearly impossible for them to communicate with each other on the topic. He said in order to call a special meeting, shareholders must be record owners. The meeting can’t consider similar items to what was covered at the meeting last year and requires extensive disclosures by the shareholder that wants to call the special meeting.

The activist investor said Allergan’s requirements are “highly unusual.” The board decides in its sole discretion whether the special meeting will be called and can cancel it at the last second in some cases. Special meetings can’t be held within 90 days before the anniversary of the prior year’s meeting, and the board can delay the request for 120 days. Ackman said this effectively knocks out 210 days of the year, leaving a narrow window in which shareholders can call a special meeting.

He also noted that this window falls around Thanksgiving and Christmas, during which it’s difficult to hold a special meeting. In the meantime, he says Allergan’s board could take “value-destructive actions to thwart the offer from Valeant,” like making an acquisition without shareholder ability to vote. Also the company has said it will buy back shares even though its stock has risen significantly.

In addition, he said it’s very difficult to address shareholders regarding a special meeting without violating the company’s bylaws. He referred to the lawsuit Pershing brought against Allergan about the poison pill. The court ruled in Pershing’s favor, saying that the additional restrictions in that poison pill did not apply.

Long process for a special meeting

He added that it takes four steps to call a special meeting, which can take weeks, and that it takes only one step for Allergan, Inc. (NYSE:AGN) to ask shareholders not to do it. Allergan said the reason it doesn’t want a special meeting is because of the distractions and also the financial costs of holding a meeting. Ackman said the costs would go away if the company engages with Valeant Pharmaceuticals Intl Inc (NYSE:VRX) (TSE:VRX) immediately and accused Allergan of being the distraction rather than the special meeting itself.

The activist investor also accused Allergan, Inc. (NYSE:AGN) of ignoring its own corporate governance guidelines, particularly in connection with the role of the lead independent director. He said CEO Pyott has a conflict of interest and that the botox maker’s board members have long tenures and low stock ownership. He said Michael Gallagher refused to meet with Pershing without Pyott.

Allergan’s corporate governance

Ackman also noted that ISS doesn’t think much of Allergan’s corporate governance either. The firm rated the company as a 10 in terms of governance risk, which is the worst ranking possible. It also recommended against Gallagher being re-elected to the board, which he said failed to implement shareholders’ request. A third withheld from voting. ISS rated Allergan 9 out of 10 on shareholder rights, which Ackman thinks should be reassessed.

His firm has now proposed a slate of directors that he believes have no conflicts of interest and is more shareholder-friendly.