A patient undergoes dialysis, aided by a Fresenius Medical Care AG machine, at a Fortis Healthcare India Ltd. Renkare dialysis clinic in New Delhi, India. (Photographer: Prashanth Vishwanathan/Bloomberg)

Court Fight Looms as Fresenius Drops $4.3 Billion Akorn Deal

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(Bloomberg) -- Fresenius SE and Akorn Inc. are squaring off in court after the German company walked away from a $4.3 billion purchase of the generic drugmaker while alleging the jilted target misled its suitor about operational weaknesses, including problems with its product-development practices.

Shares of Akorn, a U.S. maker of generic drugs, plunged Monday after the deal collapsed, and the Lake Forest, Illinois-based company filed a lawsuit in the Delaware Chancery Court asking that Fresenius be required to “fulfill its obligations” under the buyout agreement. Fresenius said experts found “material breaches” of U.S. Food and Drug Administration standards while reviewing Akorn’s operations.

Fresenius obtained “clear and comprehensive representations and warranties” regarding Akorn’s product development and new-drug applications, spokesman Matthias Link said in an email. “The investigation has determined, among other findings, that these representations and warranties were not true.”

Investors had become increasingly wary of the deal since Fresenius announced it was buying the U.S. maker of generic cancer drugs a year ago. Competition was eroding Akorn’s profit and revenue expectations, and former Chairman John Kapoor left the company after being arrested on separate racketeering charges.

Akorn shares fell $6.82, or 35 percent in New York at 3:45 p.m. It was down as much as 37 percent earlier, the biggest intraday drop since Feb. 27 and the lowest since November 2012. Fresenius fell 1.4 percent in Frankfurt.

Under the terms of the April 2017 deal, Akorn agreed to pay a $129 million termination fee if the agreement cratered, Fresenius said. Akorn said in a statement Sunday that the issues under investigation wouldn’t have prevented closing the deal or materially hurt the German company.

“We categorically disagree with Fresenius’s accusations,” Akorn said. “We intend to vigorously enforce our rights, and Fresenius’s obligations, under our binding merger agreement.”

Fresenius said it offered to delay pulling out of the deal until Akorn had completed its own review, but was turned down. Fresenius, Europe’s biggest publicly traded health-care provider, sought out the generic drugmaker to get a stronger U.S. foothold.

The U.S. company filed its suit under seal in Delaware, and details weren’t immediately available. Since Delaware is corporate home to more than 60 percent of the Fortune 500 companies, its courts hear many acquisition-dispute cases.

Judge Travis Laster, who will hear Akorn’s suit, has ruled on several high-profile deals that have collapsed. Insurer Cigna Corp. won Laster’s permission last year to renege on its $48 billion merger with Anthem Inc. after antitrust concerns made it impossible to close the deal.

Fresenius disclosed its investigation in Akorn’s operational woes, prompted by an anonymous tip, in February. Some analysts had viewed a price cut as more likely than a collapse of the deal.

Bad Homburg-based Fresenius will keep pursuing a stronger position in the U.S. generics market through organic growth, as well as acquisitions, Link said on Sunday.

Akorn’s shares have traded well below Fresenius’s offer price since the end of February, when the German company said violations of FDA rules could imperil the takeover. Akorn closed at $19.70 on Friday, about 42 percent below Fresenius’s $34-a-share price.

‘Significant Downside’

“Akorn is damaged goods,” Richard Mashaal, chief executive officer of Senvest Management, said in an email. “The likely outcome will be a nominal walk-away settlement. We still see significant downside from here.”

Through Friday, Fresenius shares had lost about 11 percent since the Akorn deal was announced, compared with a 4.5 percent increase in Germany’s benchmark DAX Index.

Akorn would have given Fresenius’s Kabi drugs unit access to a network of retail pharmacies and outpatient clinics, a broader range of potential customers for its generic drugs for cancer.

Fresenius also manages hospitals in Germany and Spain and controls Fresenius Medical Care AG, the world’s biggest provider of kidney dialysis. Fresenius Medical Care agreed over the weekend to sell its controlling interest in Sound Inpatient Physicians Holdings LLC, an acute-care services provider, for $2.15 billion.

Fresenius Medical also lowered its outlook for 2018 revenue, saying it expected a gain of 5 percent to 7 percent at constant currency rates, down from a previous expectation of a roughly 8 percent increase. The company cited a reassessment of dosing of calcimimetic drugs in its dialysis service business in the U.S. The shares fell as much as 4.5 percent early Monday.

©2018 Bloomberg L.P.

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