This week a very rich man made about a billion dollars trading on material, non-public information.
The investor is Bill Ackman and what he knew was that Valeant Pharmaceuticals would be making an unsolicited bid for botox-maker Allergan. Ackman knew about the bid because he and his Pershing Square Capital Management were partners with Valeant in the bid.
Related: Ackman puts a new twist on activism with Allergan bid
In anticipation of this deal Ackman purchased 4.99% of Allergan stock over several weeks. Once that stake was built Ackman let the market settle for a few days before going for the kill. In what he called a "rapid accumulation program" of Allergan stock. (In English Ackman bought call options and "forward contracts" giving him the right to buy another 4.7% of the company at a set price and date to be named later).
With only about $15 billion in assets under management Ackman and Pershing Square have managed to take a 10% position in what is now an almost $50 billion corporation. With Allergan shares having moved from $116 to over $160 on the takeover Ackman and Pershing Square are up hundreds of millions of dollars at the very least.
He's not alone. Also profiting are the bulls who were part of the 100% increase in the average volume of Allergan shares and call option activity immediately preceding the takeover bid.
None of this is illegal. It's brilliant. It's Wall Street.
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