Fresenius Wins Ruling on Canceled Buyout; Akorn Shares Fall

(Bloomberg) -- Fresenius SE will be permitted to cancel its takeover of U.S. rival Akorn Inc. after the Delaware Supreme Court ruled that the rapid downturn in Akorn’s generic drug business before the deal closed was sufficient grounds for the buyer to walk away.

Shares of Akorn plunged, dropping as much as 37 percent to their lowest intraday price in more than eight years. Trading in the stock was halted for a time after the three-page ruling was issued by the appeals court.

The case’s “record adequately supports the Court of Chancery’s determination
that Akorn suffered a material adverse effect” that excused Fresenius from closing the deal, the state’s highest court said Friday.

The case marked the first time the Delaware Supreme Court weighed the question of when a company can cancel a purchase because the target’s business took a sharp downturn before a deal closed. Other cases had come close to the issue of whether a business deterioration amounted to a material change, but not tipped the scales.

Matthias Link, a Fresenius spokesman, said the appellate court’s ruling blessing the German drugmaker’s abandonment of the deal was “very welcome.” Jennifer Bowles, a spokesman for Akorn, didn’t immediately return a call for comment.

Akorn sued in April after Fresenius pulled out of the deal, citing the U.S. company’s plunging revenues and operational problems. As the deal was being finalized, Fresenius officials discovered Akorn wouldn’t meet profit projections. An anonymous whistle-blower also tipped off Fresenius executives about a longstanding pattern of problems in Akorn’s drug-development and manufacturing systems.

Akorn officials claimed Fresenius focused on minor regulatory and manufacturing miscues as a pretext for canceling the buyout after suffering “buyer’s remorse.” Fresenius had suffered some of the same kinds of operational problems, they said.

After a weeklong trial, Judge Travis Laster ruled in October that the deterioration of Akorn’s business was severe enough to create a “material adverse event” allowing Fresenius to walk away. The Lake Forest, Illinois-based company appealed that ruling.

In a three-page order, the Supreme Court upheld Laster’s 246-page opinion in October finding that Akorn executives hid a litany of miscues that cast doubt on the validity of its data and the profitability of its operations.

Many high-profile disputes over merger and buyout deals are heard in Delaware, corporate home to more than half the U.S.’s public companies and more than 60 percent of Fortune 500 firms. Its chancery court specializes in quickly hearing big-dollar business cases.

Fresenius shares fell by a record amount Friday in Frankfurt trading after the company abandoned its financial goals through 2020 and issued a second profit warning in as many months.

The case is Akorn Inc. v. Fresenius Kabi AG, No. 535-2018, Delaware Supreme Court (Dover).

©2018 Bloomberg L.P.