October 20, 2014 / 4:22 PM / in 3 years

EXCLUSIVE-Allergan shareholder Paulson & Co urges deal with Shire -sources

(Adds background on potential deal with Actavis, Valeant comments)

By Olivia Oran

Oct 20 (Reuters) - Allergan Inc shareholder Paulson & Co is urging the Botox maker to merge with specialty pharmaceutical company Shire Plc as an alternative to a deal with hostile bidder Valeant Pharmaceuticals, according to two people familiar with the matter.

The hedge fund told Allergan CEO David Pyott that it would support a deal with Shire, the sources said. The deal would not be structured as a so-called tax inversion, the people said.

It was not immediately clear whether Allergan would pursue such a deal. Allergan and Paulson declined to comment.

The move by Paulson, Allergan's third-largest shareholder, comes as AbbVie's $54 billion deal to buy Shire is close to unraveling after the U.S. government changed the rules governing tax inversions.

Shareholders including Paulson are looking at alternative strategies for Allergan as it tries to fend off a deal from Valeant. Some large Allergan shareholders have said they would prefer a deal with drugmaker Actavis Plc to a tie-up with Shire.

Actavis plans to approach Allergan again about a potential merger, people previously told Reuters.

Paulson was also pushing behind the scenes for a deal between Allergan and Valeant earlier this summer, sources previously told Reuters. It remains unclear if the fund is still in favor of that.

Valeant might raise its bid for Allergan and would not abandon its pursuit ahead of a Dec. 18 special meeting, Michael Pearson, CEO of the Laval, Quebec-based company, said on Monday. (Reporting by Olivia Oran in New York; Additional reporting by Nadia Damouni and Jessica Toonkel; Editing by Chizu Nomiyama and Lisa Von Ahn)

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