Activist investors John Paulson and Bill Ackman appear to be locked in combat over Allergan, although half of the fight has just come to light. Ackman, always very vocal with what he wants, has been trying to force Allergan, Inc. (NYSE:AGN) into being taken over by Valeant Pharmaceuticals Intl Inc (NYSE:VRX).

John Paulson vs. Bill Ackman On Allergan, Shire, Valeant

Allergan and Shire?

However, Business Insider, which cites “two people familiar with the matter” reports that Paulson’s hedge fund told Allergan CEO David Pyott that it would support a deal between Allergan and Shire PLC (ADR) (NASDAQ:SHPG) (LON:SHP). Paulson & Co. is Allergan’s third-biggest shareholder.

Since there have been rumors of a potential deal between Shire and Allergan previously, it sounds like Ackman may lose this round if Allergan management would prefer a deal with Shire and the deal receives the support of Allergan’s third-biggest shareholder.

No tax inversion for Allergan, Shire

According to Business Insider’s sources, the deal wouldn’t be structured in what’s known as a tax inversion, although it isn’t clear if Allergan would attempt to push for such a deal. Many U.S. corporations have been rushing into tax inversion deals in an effort to save money on taxes. Shire is a potential target for AbbVie Inc (NYSE:ABBV), but that deal is close to collapsing because it is based on a tax inversion.

Paulson lost approximately $1.5 billion this week as it looks like the deal between Shire and AbbVie will fall through. U.S. lawmakers are working to close the loopholes in tax laws that allow corporations to move their headquarters overseas into tax havens by acquiring a foreign company. A deal between Shire and Allergan would be especially beneficial to Paulson, as it would unite two of his biggest positions.

Paulson changes his view

In June, Paulson said at CNBC’s Delivering Alpha Conference that he believed Allergan should make a deal with Valeant to be acquired by it. However, the Botox maker has consistently resisted Valeant’s offers, saying that they undervalue it and that Valeant’s business model is bad. Allergan management insist that they are seeking another buyer, claiming that Valeant only grows by acquiring other companies and doesn’t have any organic growth of its own.

Valeant Pharmaceuticals released its latest earnings report on Monday, and the earnings call after that report was largely focused on Ackman. The activist investor was reportedly in Valeant’s offices the previous night. Investors want to know if Valeant will again increase its bid for Allergan, as it has been rumored that it will do.