Walgreen executives face another shareholder suit alleging deception in earnings forecast, merger

Another investor has sued the leadership at Walgreen Co., claiming its executives and directors, acting in the run-up to the culmination of a deal to merge with Europe’s largest retail pharmacy chain, deceived shareholders and government regulators concerning a multi-billion dollar drop in earnings expectations, ultimately eviscerating a large chunk of company capital and robbing investors of large sums of anticipated returns.

Walgreen shareholder Anne Cutler filed suit late last month in Chicago's federal court against outgoing Walgreen Chief Executive Officer and President Gregory Wasson, former Chief Financial Officer Wade Miquelon, billionaire investor and soon-to-be acting CEO Stefano Pessina, Walgreen’s board chairman James Skinner and nine other officers at the Deerfield-based retail pharmacy chain.

In her action, filed nominally on behalf of Walgreen Co., Cutler asks the court to hold the Walgreen officers accountable for allegedly breaching their fiduciary duty, wasting corporate assets and improperly profiting themselves at the expense of the company they oversaw and the company’s shareholders, while hiding from investors the full, dire impact of rapidly-rising generic drug costs on the company’s books.

“As a result of the Individual defendants' improprieties, Walgreens disseminated improper, public statements concerning the company's (earnings) forecast and the company's continuing struggles with skyrocketing generic drug prices,” Cutler wrote in her complaint. “These improper statements have devastated Walgreens' credibility as reflected by the company's almost $9.5 billion, or 14.3 percent, market capitalization loss.”

Cutler has asked the court to force the corporate officers to pay restitution for the amount of damage she alleges they did to Walgreen Co. She also has asked the judge to order the company to allow shareholders to institute tighter financial reporting procedures and to install three directors on Walgreen’s board directly, among other damages.

The suit comes amid a flurry of litigation surrounding Walgreen’s planned acquisition and merger with European pharmacy retailer, Alliance Boots.

The company, for instance, faces a federal class action brought in early December by investor James Hays on behalf of Walgreen’s 73,500 shareholders, demanding the company better explain its decisions concerning the deal and the events leading to the resignation and subsequent defamation suit Miquelon filed against the company and its officers in October.

Walgreen Co. began the process of acquiring Alliance Boots in 2012, and in the ensuing two years, filed regulatory documents and issued public statements repeatedly assuring investors it would either hit of fall just shy of hitting earnings expectations of around $9.5 billion in 2016.

However, behind closed doors, company leadership was aware generic drug cost increases of as much as 1,000 percent, in some cases, were eating away at corporate profits. Yet, throughout 2013 and early 2014, Cutler alleges in her complaint Walgreen officers conspired to willfully deceive investors and the public.

Finally, in mid-2014, amid Miquelon’s resignation, the company told the truth, Cutler's suit states, noting earnings would fall almost 24 percent short of the anticipated earnings mark. That announcement, in turn, sharply dropped Walgreen’s share price, and damaged the company’s financial standing and credibility, Cutler claims.

In October, Miquelon filed suit, alleging Wasson and Pessina pushed him out of the company and defamed him for opposing the company’s plans to relocate its corporate headquarters overseas to take advantage of lower corporate tax rates and for accurately adjusting Walgreen’s earnings forecasts downward, forcing the company to disclose its true position.

Cutler is being represented in her action by attorneys Norman Rifkind and Amelia S. Newton of Lasky & Rifkind in Chicago; Brian J. Robbins, Kevin A. Seely, Ashley R. Palmer and Leonid Kandinov of Robbins Arroyo LLP in San Diego; and Richard J. Vita of Vita Law Offices in Boston.