My understanding is that the remaining Board has the authority to appoint replacement board members -- they can even reappoint, as silly as this may sound, exactly the same individuals just ousted.
Ackman playbook, as publicly explained very early in the process, is that Allergan won't be so bold as to take an action directly in the face of a rebuke voted by a majority of the shareholders. His earlier (now long abandoned) effort to call for a "non-binding shareholder referendum" was based on exactly such thinking (that the Board would be cowed by an incontrovertible expression of the will of the shareholders). I think (speculative), that he is just starting to realize how much he underestimated the determination of this management and board.
Assuming Ackman's is not frozen by an injunction from the Federal Court, and assuming the Valeant offer is still alive by December 18, and assuming the special shareholder meeting takes place as currently agreed, and assuming Ackman wins the motion to oust the board members, and then the remaining board votes to appoint equally anti-Valeant new Board members (even if not the same individuals just ousted); then Ackman will likely go to court to try to force his nomination slate to the board. At which point, an entirely new set of arguments will come into play. Allergan will argue that the interest of the shareholders are not best served by a board dominated by appointees beholden to Ackman since Ackman's interest is for Valeant to buy Allergan as cheaply as possible (consequent to his agreement to accept a fixed number of Valeant shares for his Allergan stake); whereas for all other shareholders the interest is to get as much value as possible (either from Valeant or any other alternative, including staying independent). Since the shareholders have merely voted to oust existing board members (under this scenario), Ackman will not have an iron-clad argument that the will of the shareholders has been determined to actually favor his slate. This suit will probably dwarf all the prior suits in ferocity. While the DE Chancery judge, based on his comments thus far (no merit decisions thus far), appears to be more receptive to Ackman than Allergan; I don't see him dealing a death blow to a $50B company with less than a full trial. Full trials, even under the maximum expedite rules, take multiple months. [There is a fascinating, but extremely remote, possibility that the judge will appoint his own advisers as interim directors -- until the next shareholders' meeting -- thus assuring impartiality.]
BTW, if Ackman's shares are frozen by the Federal court; they are not just prevented from voting in favor of ousting the board members, they are effectively forced to vote against it -- quite the irony -- because in a special meeting, all non-voting shares are deemed to be voting against every motion.
Dan.
