Fresenius Accused of Nixing Akorn Deal Over Buyer’s Remorse

(Bloomberg) -- Fresenius SE wrongfully pulled out of a $4.3 billion purchase of generic drugmaker Akorn Inc. because it had “buyer’s remorse’’ over the price, Akorn’s lawyers said in an unsealed lawsuit.

Fresenius executives used the false pretext that the German company’s investigation of Akorn found officials had misled U.S. regulators about its product-development practices to walk away from the deal, according to the Delaware Chancery Court suit.

Akorn is asking Chancery Judge Travis Laster to bar Fresenius from walking away from the deal or attempting to sabotage efforts to secure antitrust clearance for the merger.

Shares of Akorn plunged April 23 after the deal collapsed, and the Lake Forest, Illinois-based company sued Fresenius the same day to force it to complete the buyout. The lawsuit was unsealed Friday. 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.

Akorn’s shares rose 42 cents, or more than 3.1 percent, Friday in Nasdaq trading at 11:28 a.m. Fresenius fell 72 cents, or about 1.1 percent in Frankfurt.

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Eight months after agreeing to buy Akorn, Fresenius executives started getting cold feet and “launched a broad fishing expedition” to find some basis to get out, Akorn said. The attempt to renege has “placed a cloud over” Akorn’s future, its lawyers said in the lawsuit.

Fresenius spokesman Matthias Link said the company walked away from the deal because of because of the data integrity problems and other closing conditions which were not fulfilled. Bad Homburg-based Fresenius, Europe’s biggest publicly traded health-care provider, sought out the generic drugmaker to get a stronger U.S. foothold.

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

Shutting Operations

Akorn officials said they fully cooperated with Fresenius’s due-diligence investigation, turning over 2.8 million documents, arranging interviews with 48 employees and temporarily shutting down operations at one facility so Fresenius could get data from computers and lab equipment. “Defendants engaged in a litigation-style discovery process,” according to the lawsuit.

Fresenius alerted Akorn in a letter that it was preparing to announce publicly its investigation had found problems including “data integrity issues related to R&D work’’ at Akorn facilities in the U.S. and India.

The probe uncovered the “intentional destruction of more than 200,000 raw data files, insufficient IT staffing and insufficient security controls on laboratory systems’’ among the problems, Fresenius officials said.

Akorn disputed its would-be suitor’s findings, saying in a February letter that Fresenius was blowing minor glitches that had been addressed out of proportion.

Akorn accused Fresenius of making “materially false and misleading’’ statements about Akorn’s operations and argued the merger agreement didn’t allow for cancellation based on the findings of Fresenius’ probe.

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Akorn added in the suit that all closing conditions have been satisfied except for antitrust clearance, “which is expected to be obtained in the near future.’’ The deal’s closing date is set for July 24.

Fresenius executed a divestiture agreement with Alvogen Group on March 22 and submitted revised divestiture package to the U.S. Federal Trade Commission. On April 20, FTC sent the parties a draft decision and order. Sending of the draft decision and order is one of the steps in FTC review process before ultimate approval by the FTC Commissioners.

The case is Akorn Inc. v. Fresenius Kabi AG, No. 2018-0300, Delaware Chancery Court (Wilmington).

©2018 Bloomberg L.P.

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