No Allergan Deal, but a $2.6 Billion Profit for Ackman

Depending how you look at it, William A. Ackman either had a very good day or a very bad day.

Mr. Ackman's hedge fund, Pershing Square Capital Management, is the largest shareholder in Allergan, the Botox maker that on Monday agreed to sell itself to Actavis for $66 billion.

Earlier this year, Pershing Square accumulated its 9.7 percent stake at an average price of $129.28 per share, according to Bloomberg. Now Pershing Square looks set to sell those 28.9 million shares in Allergan for $219 apiece.

That amounts to a profit of $2.6 billion for Mr. Ackman's position, another win for one of the most ambitious and successful hedge funds on Wall Street.

But of course, Mr. Ackman was also working with Valeant Pharmaceuticals in an effort to acquire Allergan. Valeant and Pershing Square had been trying to convince Allergan to enter into deal talks since April. The price Valeant and Pershing Square were willing to pay, however, never came close to $219 per share being offered by Actavis. And on Monday, Valeant signaled it was bowing out of the bidding for Allergan, all but certainly leaving Actavis as the victor.

Working with Pershing Square was an unusual move for Valeant. Never before had a big corporation partnered with an activist hedge fund to try and buy another company And the unconventional relationship came with an unusual profit sharing agreement: in the event that Allergan was acquired by a third party, Pershing Square would share 15 percent of any profits from its stake with Valeant.

For much of the year, that scenario appeared unlikely. Until recently, no other bidders came forward for Allergan. But now Actavis has agreed to pay a substantially higher price than was previously being offered, and Valeant has bowed out. Pershing Square did not immediately comment on Allergan's sale to Actavis.

That will leave Valeant expecting to realize about $389 million in profits, or 15 percent of Pershing Square's gain. After paying Valeant its 15 percent, Pershing Square will be left with about $2.21 billion in profits.

So even though Mr. Ackman doesn't get to participate in the acquisition of Allergan, his firm will reap a tremendous profit for its seven months of work to put the Botox maker in play.