Ackman: Allergan Is A Good Merger Arbitrage Play, Potential 28% Upside

Pershing Square’s CEO Bill Ackman spoke on Bloomberg TV Wednesday, discussing several issues, including Herbalife Ltd.’s (NYSE: HLF) pyramid scheme, Fannie Mae, Freddie Mac, Canadian Pacific Railway Limited (USA) (NYSE: CP), McDonald's Corporation (NYSE: MCD) and Allergan, Inc. (NYSE: AGN).

Regarding Allergan, the famed investor said that he still hasn’t decided how much longer his fund will hold Allergan stock, particularly if a merger goes through. However, Ackman's fund still owns every share that it has purchased, “other than the piece that belonged to Valeant," Ackman said.

Ackman's Support

About a month ago, Ackman expressed his support for the Allergan-Actavis plc (NYSE: ACT) deal, and support of Actavis’ CEO, Brent Saunders. As the deal becomes more tangible (Ackman sees it as highly probable), he once more recommended buying Allergan’s stock. Assuming the transaction closes at the expected price, the upside potential surrounds 28 percent.

Related Link: Benzinga's Top Downgrades -- Allergan, Ford

A Closer Look At An Allergan Merger

Ackman seemed pretty happy with the outcome regarding Allergan: “Our focus always is doing the best we can for the shareholders of the companies in which we invest; our franchise depends on maximizing value for other shareholders, and that’s how we ultimately do well for ourselves."

In this case, the stock, which was at $125.00 when it started with Ackman's fund, is now at more than $206.00. A value of $30 billion was created over the course of one year. The favorite candidate for a merger back then was Valeant, and Actavis was not even considered. As the latter bought Forest Laboratories, Inc., and the former was not prepared to pay as much for Allergan, the situation shifted.

Apparently, Ackman and his team are still giving due diligence to Actavis, trying to work out a deal that benefits all shareholders.