Prominent investor shareholder advisory firm ISS called on Allergan to give its shareholders a chance to vote on any large, buyout-blocking acquisitions and said the company's board faced a credibility problem, according to a report by the firm.

The ISS report comes as Allergan's largest shareholder, hedge fund Pershing Square Capital Management, is urging the Botox maker to sell itself to rival Valeant Pharmaceuticals International.

ISS’s pronouncements are watched by institutional investors including prominent mutual funds. This report could turn up the heat in the bitter fight over Allergan’s future, industry analysts and investors said.

Allergan has repeatedly rebuffed Valeant's buyout proposals. Instead, Allergan wants to buy Salix Pharmaceuticals for cash, a deal would not require a shareholder vote, people familiar with the matter have said.

A cash acquisition of Salix, which has a market capitalization of nearly $10 billion (€8 billion), would make Allergan too big and expensive for Valeant or another buyer, effectively defending the company from an unwanted takeover.

“To point out that the board has authority to approve an all-cash acquisition without shareholder approval is to point out the irrelevant: the question is not what the board can do, but what the board should do,” ISS said in a report sent to clients today.

ISS said it is unusual for large shareholders to express concerns about a board’s stewardship so publicly. Industry analysts and investors said the ISS report itself, which does not make any specific recommendation, is also unusual.

Investors owning more than 35 per cent of Allergan shares have asked it to call a special meeting, hoping to replace most of its directors with people receptive to Valeant's bid. Allergan set a special meeting for December 18th.Last Friday shareholder T.Rowe Price urged it to hold off on major acquisitions before that meeting. – (Reuters)