United States District Court, Central District of California, Southern Division
ORDER GRANTING IN PART MOTION FOR PRELIMINARY INJUNCTION 
DAVID O. CARTER UNITED STATES DISTRICT JUDGE
Before the Court is Plaintiffs’ Motion for Preliminary Injunction (“Motion” or “Mot.”) (Dkt. 160). After reviewing the papers and considering the arguments at the hearing on the Motion, the Court GRANTS IN PART the Motion.
This case arises from a live battle for corporate control that has spilled over into the courts. In February 2014, Canadian-based pharmaceutical company Valeant and hedge fund management company Pershing Square teamed up to help Valeant pursue a combination with Irvine-based pharmaceutical company Allergan. Between February and April, Pershing Square acquired 9.7% of Allergan’s shares. In June 2014, Valeant publicly announced a tender offer for Allergan shares after Allergan’s board of directors had rebuffed an unsolicited merger proposal.
Valeant and Pershing Square then went directly to Allergan’s shareholders to urge them to call a special shareholder meeting to replace Allergan’s current directors with directors friendlier to Valeant. At the much-publicized urging of Pershing Square and some other shareholders, and after settling litigation in Delaware, Allergan agreed to hold a special shareholders meeting on December 18, 2014.
This litigation is but one of several court cases spawned by this corporate drama. In this case, Plaintiffs Allergan, Inc. and Karah H. Parschauer allege that Defendants violated federal securities laws and regulations in connection with Valeant’s tender offer for Allergan and in connection with Valeant’s and Pershing Square’s proxy solicitations. In the instant Motion, Plaintiffs seek an order from this Court (1) preliminarily enjoining Defendant PS Fund 1, the entity holding Allergan stock, “from exercising any of the privileges of ownership attaching to its 9.7 percent stake in Allergan, including voting or acting” at the December 18, 2014 Allergan shareholder meeting; and (2) preliminarily enjoining Defendants from voting any proxies solicited by them in violation of Section 14(a) or Rule 14a-9 until corrective disclosures are made. Mot. at 37.
A. Facts Regarding Alleged Securities Law Violations
1. February 2014 and Earlier
Valeant initially approached Allergan regarding a potential transaction between their companies in September 2012, but was rebuffed by Allergan’s CEO David Pyott and board of directors. Mot. at 6.
On February 4, 2014, Valeant’s CEO and board chairman J. Michael Pearson had a face-to-face introductory meeting with William Ackman of Pershing Square. They discussed unsolicited bids in the pharmaceutical industry generally and Pershing Square’s expertise in handling unsolicited bid situations but did not discuss Allergan in detail. The meeting was set up by William F. Doyle from Pershing Square, who knew that Mr. Ackman and Pershing Square had experience handling unsolicited bids. Doyle Dep. 29:3-10, 134-3-10, Sept. 27, 2014. After the meeting, Pershing Square began conducting due diligence on Valeant in anticipation of potentially working with Valeant. Pearson Dep. 49:16-21, Sept. 30, 2014.
On February 6, 2014, Valeant’s CEO Mr. Pearson scheduled a meeting with Allergan’s CEO Mr. Pyott for February 15, 2014, in hopes that Mr. Pyott would be willing to discuss a potential transaction between Allergan and Valeant. On the same day, Valeant engaged law firm Sullivan & Cromwell LLP (“Sullivan & Cromwell”) to work on a potential Allergan-Valeant transaction. Sometime later in February, Valeant also hired Skadden, Arps, Slate, Meagher & Flom LLP and Osler, Hoskin & Harcourt LLP to work on the transaction. See Declaration of Colleen Smith (Dkt. 161-3) (“Smith Decl.”) Ex. 3 at 39.
On February 7, 2014, the Finance and Transactions Committee of Valeant’s board of directors held a telephonic meeting in which it discussed a potential Allergan-Valeant combination. Smith Decl. Ex. 3 at 40. The slide deck used for the meeting shows that Sullivan & Cromwell was “Pulling together key diligence items” and “Working on structure and key actions to launch offer” and that Bank of America Merrill Lynch and Goldman Sachs were “clearing conflicts.” Smith Decl. Ex. 12 at 24. Bankers were brought up because Valeant was beginning to “line up financing.” Schiller Dep. 97:18-98:18, Sept. 30, 2014.
On February 9, 2014, Pershing Square and Valeant signed a confidentiality agreement. Later that day, Mr. Pearson revealed the identity of Valeant’s target, Allergan, to Mr. Ackman. The Valeant board of directors met later that day and discussed the confidentiality agreement and the potential Allergan-Valeant transaction. Smith Decl. Ex. 3 at 40.
On or around February 10, 2014, Sanford B. Bernstein & Co. published a note reporting on its meeting with Allergan. Allergan had said that Allergan was not interested in acquisition by Valeant and that Allergan “shareholders will hesitate to take Valeant paper.” Smith Decl. Ex. 86 at 2. Subsequently, Mr. Pearson cancelled the scheduled meeting with Mr. Pyott, thinking there was no point in meeting if Allergan was not interested in a potential Allergan-Valeant transaction. Pearson Dep. 55:19-56:18.
On February 11, 2014, Pershing Square formed PS Fund 1, LLC, with five Pershing Square entities as members (but not Valeant). Smith Decl. Ex. 15.
On February 13, 2014, representatives from Valeant and Pershing Square met to discuss a potential Allergan-Valeant transaction. Smith Decl. Ex. 3 at 40. They discussed assumptions about Allergan and discussed the possibility that they would have to call a special meeting to replace Allergan’s board members. Smith Decl. Ex. 85 at 2; Schiller Dep. 115:1-18. Emails and slide decks circulated within Valeant and within Pershing Square during the next couple of days reveal that Valeant and Pershing Square both thought there was a strong possibility that Allergan would be a “Hostile cash and stock merger” because Allergan would resist Valeant’s plan to “make an unsolicited cash and stock offer with $10-15B of cash and 20-25% premium” and that Pershing Square’s participation would be important “to drive greater certainty of deal closing.” Smith Decl. Ex. 4; Smith Decl. Ex. 85 at 3; Pearson Dep. 91:14-21; Ackman Dep. 41:11-42:17, Oct. 2, 2014; Smith Decl. Ex. 25.
Around the middle of February 2014, there was still a possibility that Allergan would negotiate a friendly transaction. Schiller Dep. 67:18-68:8. During Valeant’s board meeting on February 21, 2014, board members discussed the pros and cons of an Allergan-Valeant transaction and of Pershing Square’s role in closing the deal. One factor that was discussed was Mr. Ackman’s ability to purchase 10% of Allergan stock, which would go a long way toward the 25% needed to call a special meeting. Another factor was whether having Mr. Ackman participate would make it easier to persuade Allergan’s board to negotiate. Pearson Dep. 153:18-158:23. Nevertheless, the general consensus was that Allergan would most likely be unreceptive to a merger proposal.
2. February 25 Relationship Agreement
During this time, Valeant’s and Pershing Square’s respective lawyers drafted a “Proposed Acquisition Plan” laying out how Valeant and Pershing Square would work together to acquire Allergan. The plan was finalized and memorialized in a February 25, 2014 letter agreement. Smith Decl. Ex. 34 (“Feb. 25 Relationship Agreement”). The plan involved Valeant and Pershing Square becoming members in “a newly formed jointly owned entity” dubbed the “Co-Bidder Entity.” Feb. 25 Relationship Agreement § 1(a). Pershing Square would manage the Co-Bidder Entity, including the manner and timing of purchasing Allergan stock, except that Valeant had to consent before the Co-Bidder Entity’s purchases triggered Hart-Scott-Rodino reporting requirements. Id. §§ 1(a), (e). Pershing Square would also control the voting rights associated with the Co-Bidder Entity’s Allergan stock except that the Co-Bidder Entity was required to vote all of its shares in favor of Valeant’s proposals and against any proposal that would undermine Valeant’s proposals. Id. § 1(e). Pershing Square was not permitted to purchase Allergan stock through any other person or entity but the Co-Bidder Entity. Id. § 1(c).
With regard to decision-making authority for the anticipated Allergan-Valeant transaction, the agreement provided:
Prior to making any material decision relating to a Company Transaction (including, for the avoidance of doubt, any proxy contest, proxy solicitation, written consent solicitation or other action relating to or potentially affecting the composition of the board of directors of Allergan), [Valeant] will consult with Pershing Square and will consider in good faith Pershing Square’s comments on such prospective actions; provided that the parties acknowledge that no steps have been taken towards a tender or exchange offer for securities of Allergan and the parties agree that the consent of both Pershing Square and [Valeant] shall be required for launching such a tender offer or an exchange offer. If a Company Transaction is being pursued by [Valeant] through a tender or exchange offer or a merger or any related proxy or other solicitation prior to the Termination Time, each of [Valeant], Pershing Square and the Co-Bidder Entity will be identified as co-bidders or soliciting persons, respectively.
Id. § 1(d).
With regard to financing, Valeant agreed to contribute $75.9 million to the Co-Bidder Entity once the Co-Bidder Entity purchased 4% of Allergan stock. Id. § 1(a). Immediately prior to the consummation of the anticipated Allergan-Valeant transaction, if Valeant wished to do so, it could require Pershing Square to purchase $400 million of Valeant stock. Id. § 2(a); Ackman Dep. 169:13-171:18. If the transaction was consummated in a way that allowed Allergan shareholders to receive either cash or Valeant shares, then Pershing Square agreed to have the Co-Bidder Entity receive stock. Feb. 25 Relationship Agreement § 2(b). Once the transaction was consummated, the Co-Bidder Entity would dissolve and its assets, including any net profits arising from the Allergan stock, would be divided pro rata between Valeant and Pershing Square. Id. § 3.
After the transaction was consummated, Pershing Square agreed to hold $1.5 billion worth of Valeant stock for one year. Id. § 2(c). At one point the parties discussed the idea of Pershing Square designating one director to Valeant’s board, but the final version of the agreement did not provide for that. Compare Smith Decl. Ex. 10 with Feb. 25 Relationship Agreement.
3. February 25 – July 2014
On February 25, 2014, the Co-Bidder Entity, PS Fund 1, began to purchase Allergan stock. On April 3, Pershing Square notified Valeant that PS Fund 1 had acquired 4% of Allergan stock. PS Fund 1’s LLC Agreement was amended on April 6 to add Valeant as a member. Smith Decl. Ex. 3 at 42. On April 7, Valeant’s board gave its consent for PS Fund 1 to proceed across the 5% threshold and to take further action to facilitate the potential transaction with Allergan, “provided that the Authorized Officers are not authorized [to] commence a tender offer or a proxy solicitation without the approval of the Board.” Defs.’ App’x Ex. 70 at 10. On April 10, a day before PS Fund 1 acquired 5% of Allergan stock, Valeant contributed its promised $75.9 million to PS Fund 1. Also on April 10, Valeant approved PS Fund 1 going over the 5% threshold. Between April 11 and 21, PS Fund 1 increased its ownership up to 9.7% of Allergan’s shares. Smith Decl. Ex. 3 at 42. Plaintiff Karah Parschauer exercised and sold Allergan stock options on February 26 at $127.60 per share and on March 11 at $129.08 per share. Compl. ¶ 21.
Between February 25 and April 21, Valeant held several board meetings where the potential transaction with Allergan was discussed. Smith Decl. Ex. 26 at 7-10; Exs. 46-48. McKinsey & Co., a consulting firm, helped Valeant conduct due diligence and prepare valuation analyses of Allergan. Valeant also developed post-announcement communication strategies and made post-acquisition plans. E.g., Pearson Dep. 103:9-104:19; Smith Decl. Ex. 2; Smith Decl. Ex. 96.
On April 21, PS Fund 1 publicly disclosed its 9.7% stake in Allergan through a Schedule 13D filing. Smith Decl. Ex. 43. On April 22, Valeant issued a press release announcing that it had sent an unsolicited bid for all of Allergan’s shares to Allergan’s board and CEO. Smith Decl. Ex. 67. In response, Allergan’s stock price rose 22%. Allergan’s board adopted a shareholder rights plan, or poison pill, the next day and Pershing Square began preparing to hold a shareholder referendum to pressure Allergan’s board to negotiate with Valeant. Declaration of William Ackman (“Ackman Decl.”) (Dkt. 194-5) ¶¶ 21, 27.
As of April, no tender offer or exchange offer had been explicitly announced yet. In response to an investor’s question on April 22 about whether an exchange offer was forthcoming, Mr. Ackman responded:
I think that anyone in the room who talks to a good M&A attorney will understand, you’ll read the documents on the company, there are opportunities to call special meetings. There are opportunities for investors to launch various kinds of offers. You should assume that we’re familiar with all these various techniques. I think the first choice for everyone on the podium and for ultimately, I think, the Allergan shareholders and for Valeant shareholders is, this is an extremely attractive offer from the Allergan shareholders’ perspective. Now, I’m sure the board will have some input, and some ideas, and some feedback, and I think the best thing that can happen here is for this management team to sit down with Allergan’s management team and board of directors, and work out a transaction that’s the best interests of everyone.
Smith Decl. Ex. 105 at 168-69. On June 17, upon announcing the tender offer, Mr. Pearson reflected back to the April announcement: “On April 22, we announced our offer for Allergan. We suspected at the time it would ultimately have to go directly to Allergan shareholders. We were correct.” Smith Decl. Ex. 137 at 3.
On May 12, Allergan’s board rejected the merger proposal. Smith Decl. Ex. 71 at Item 8.01. In late May, officers of Pershing Square and Valeant attended the Sanford Bernstein investor conference in New York where they spoke with many Allergan shareholders. Schiller Dep. 233:15-234:1; Ackman Dep. 164:19-165:4. Responding to feedback from those shareholders, on May 30, Valeant announced a new, higher offer for Allergan’s shares. Declaration of Michael J. Pearson (“Pearson Decl.”) (Dkt. 194-9) ¶ 27. Around this time, Valeant’s board formally authorized management to pursue a tender offer. Valeant also secured financing for a tender offer, asked its legal counsel to draft documents for the tender offer, and contacted an exchange agent and dealer manager. Defs.’ App’x Ex. 85; Pearson Decl. ¶ 30. On June 2, Pershing Square announced that it was abandoning the referendum idea and would instead begin soliciting shareholder requests for a special shareholder meeting.
On June 11, Valeant formed AGMS, Inc. (“AGMS”), a wholly-owned subsidiary, to hold Allergan shares acquired through the tender offer. Pearson Decl. ¶ 30. On June 17, Valeant publicly announced that it would launch a tender offer to Allergan shareholders. Smith Decl. Ex. 133 at 10. On the following day, Valeant, AGMS, and PS Fund 1 filed a tender offer statement (“Schedule TO”) listing Valeant and AGMS as “offerors” and PS Fund 1 as an “other person” on the cover page. Smith Decl. Ex. 77. The Schedule TO described AGMS as the “Purchaser” and stated that PS Fund 1 was also filing the Schedule TO “as a person that is considered a co-bidder for SEC purposes.” Id. at 3. In July, the SEC requested that Pershing Square list itself as an offeror in the tender offer materials. Defs.’ App’x Ex. 37 at 1. Accordingly, on July 22, Defendants amended the Schedule TO to list Pershing Square and PS Fund 1 as “offerors.” Defs. App’x Ex. 44. The amended ...