A group of investors wants a court to keep a foreign pharmaceutical firm from buying an Illinois drug maker, saying shareholders won’t get enough from the deal, which is valued at more than $4 billion.
On April 24, Fresenius SE, a German firm, announced plans to buy Akorn, Inc., a generic drug manufacturer based in Lake Forest, for $4.3 billion. On May 2, Akorn shareholder Robert J. Shannon Jr. filed a class and derivative action complaint in Cook County Circuit Court, alleging breach of fiduciary duties against Fresenius and Akorn.
Fresenius has its U.S. headquarters in Lake Zurich and global headquarters in Homburg, Germany. Also named as a defendant is Quercus, a Fresenius subsidiary, and Akorn founder John N. Kapoor, who has been board chairman since 1990 and served as chief executive officer in 2001 and 2002. Shannon also named as defendants Akorn board members Kenneth S. Abramowitz, Adirenne L. Graves, Ronald M. Johnson, Steven J. Meyer, Terry A. Rappuhn, Brian Tambi and Alan Weinstein.
According to the complaint, Akorn’s portfolio includes more than 180 generic, branded, over-the-counter and animal health products classified as “ophthalmic, injectable and niche sterile and nonsterile pharmaceuticals.” Shannon said Akorn revenue grew by 13 percent in 2016 to $1.1 billion and net income increased 22 percent to $184 million. Under sale terms, Fresenius would assume $450 million in Akorn debt.
The sale would yield $34 in cash for each share of Akorn common stock, but Shannon noted those shares were trading for more than $34 as recently as July 27. Shannon’s complaint said Akorn board members put “significant personal benefits” ahead of making sure shareholders got maximum value, adopted “preclusive deal protection devices that effectively prevent any alternative bidder from surfacing” and failed to conduct an appropriate sale process. Fresenius and Quercus, he said, “aided and abetted the board’s breach of fiduciary duty.”
Shannon’s complaint is derivative on behalf of Akorn. He noted a demand for the board to file a complaint against its members as individual defendants “would have been futile … a majority of the board was involved in self-dealing and mismanagement, essentially extinguishing any possibility an impartial majority could vote on and oversee this suit.”
Saying “Akorn is poised to continue growing well into the future,” Shannon cited sales and revenue figures from recent years and said new products were expected to generate $30 million to $60 million in additional revenue in 2017. But he said the sale terminates shareholders’ ability to profit from projected growth.
According to the complaint, board members control more than 32 million “largely illiquid shares of Akorn,” more than 25 percent of outstanding shares. That works out to roughly $1.1 billion for those board members as a result of the sale. Board members also would get cash for unvested restricted stock units and stock options, significant, Shannon noted, because members get a large portion of annual compensation through those channels.
Shannon also said the sale is intended to salvage the board members’ professional reputations as Akorn is a defendant in a federal securities class action in Chicago “based on a series of false and misleading statements in Akorn’s SEC filings from May 6, 2014, through April 24, 2015.” Shannon’s complaint noted the court dismissed Akorn’s motion to dismiss on March 6.
In addition to class certification and a jury trial, the complaint wants the court to halt the sale until the board adopts a new sale process aimed at maximizing shareholder value and provides all material disclosure to stock owners. In the event preventing the sale is not feasible, Shannon seeks damages for class members.
Representing Shannon, and putative class attorneys, are lawyers from Robbins Geller Rudman & Dowd LLP, of San Diego.