(Reuters) - Institutional Shareholder Services (ISS) is backing activist investor Bill Ackman's call for a special meeting of Allergan Inc (N:AGN) investors that could topple the company's board and increase the chances of a takeover by Valeant Pharmaceuticals International (TO:VRX).
ISS' recommendation on Wednesday follows a similar view from shareholder advisory firm Glass Lewis on Monday, giving Ackman's Pershing Square Capital Management momentum as the hedge fund tries to muster support for the meeting. ISS is the largest proxy adviser for institutional investors.
Pershing, Allergan's biggest investor with a 9.7 percent stake, needs to garner shareholder support representing 25 percent of the California company, best known for its Botox anti-wrinkle injections. Pershing wants to replace most of Allergan's board, which has refused to negotiate with Valeant, which is based in Laval, Quebec.
In a report, ISS said "there appear to be significant governance issues which could be addressed" in a special meeting.
Ackman and Valeant said they are pleased with the ISS and Glass Lewis reports.
"The ISS Report should cause Allergan shareholders to question the credibility of a Board that is pursuing frivolous litigation tactics and baseless attacks to delay or stop the right for shareholders to fix anti-shareholder bylaws, elect shareholder-friendly directors and to voice their concerns about Allergan's poor corporate governance," Ackman said in a statement.
Allergan said the advisory firms were merely stating that shareholders should have the right to call a special meeting.
"These recommendations do not change the fact that Valeant`s offer is grossly inadequate, substantially undervalues Allergan, creates significant risks and uncertainties for Allergan stockholders and is not in the best interests of the company and its stockholders," Allergan said in a statement.
Allergan has been fighting the takeover bid since it was announced on April 22.
Valeant's cash and stock offer is currently worth about $49 billion, after its shares fell 12 percent since reporting disappointing second-quarter earnings on July 31.
Pershing Square and Valeant officials could not be reached immediately for comment.
Allergan shares lost 1.2 percent in afternoon trading in New York to $156.56, while Valeant's U.S.-listed stock dipped 0.4 percent to $110.20.
(Reporting by Rod Nickel in Winnipeg, Manitoba; Editing by Tom Brown and Leslie Adler)