Plaintiffs’ attorneys stand to make $5 million from the proposed $16.75 million settlement of a class action suit by investors against North Chicago-based drugmaker AbbVie, which alleged the company hid information that led investors to lose money after AbbVie backed out of a merger with a European company.
A group of hedge funds and other investors sued AbbVie several years ago in U.S. District Court for the Northern District of Illinois in the aftermath of AbbVie's abortive merger with Irish pharmaceutical company Shire PLC. The investors alleged AbbVie pulled out of the $54 billion deal, which would have cut AbbVie's taxes by allowing it to become a foreign corporation, after the U.S. government announced it was going to forbid such tax maneuvers.
AbbVie never disclosed it might not go through with the merger if its taxes were not going to be lowered, investors alleged. Specifically, AbbVie's CEO and chairman, Richard Gonzalez, publicly said one week after the government stated it was curtailing the tax cuts, he was "more energized" and "more confident than ever" about the pending acquisition, according to the suit. Plaintiffs said they took Gonzalez' statement as a sign the deal was moving forward. However, three weeks later the merger was canceled.
Investors said they would not have continued putting money into Shire if they had known of such possibility, and as a consequence they took a bath when Shire's stock prices plunged 30 percent in the two days after the proposed merger fell apart.
Plaintiffs include Elliott International, the Liverpool Partnership, Tyrus Capital Event Master Fund and Tyrus Capital Opportunities Master Funds. Plaintiffs sued AbbVie for fraud in November 2014, alleging AbbVie breached the U.S. Securities Exchange Act.
On June 19, plaintiffs presented a preliminary settlement agreement to U.S. District Judge Robert Dow Jr. for his approval.
The proposal would set up a $16.75 million fund, from which lead attorneys collect about $5 million, plus no more than $750,000 in costs. The lead attorneys said the settlement "does not grant excessive compensation to Lead Counsel," and is in line with other similar settlements.
Class members would be anyone who acquired shares, bought call options or sold put options of Shire between Sept. 29 and Oct. 14, 2014. The settlement recognizes a loss amount of $50.69 per acquired share and notes more than 40 million shares were tradable during the period. The dates in question mark when Gonzalez made his statement of confidence in the Shire purchase and when AbbVie announced it might not make the purchase. Members would collect payouts on a pro rata basis. Notice of the pending settlement would be mailed to 1,350 brokers.
The lead plaintiff, Dawn Bradley, would receive about $10,000 on top of her cut of the settlement.
Any money left after it is no longer cost effective to distribute among class members, would be given to Public Justice, a nonprofit legal advocacy group based in Washington, D.C.
The proposed settlement was reached after mediation by retired lawyer David Murphy, of Phillips ADR, a California-based arbitration and mediation firm.
In agreeing to settle, the lead plaintiff expressed confidence in the suit, but recognized the uncertainty of the legal process.
"Plaintiff acknowledges there were substantial risks in further prosecution of this Action. While she believes she would have prevailed, such an outcome is far from certain," the plaintiffs' lawyers wrote in a memorandum explaining the proposed settlement deal.
AbbVie is represented by the Chicago firm of Jones Day.
Lead counsel for plaintiffs are Gardy & Notis, of New York, and the Chicago and New York offices of Wolf, Haldenstein, Adler, Freeman & Herz.