Sunday, April 13, 2008

Interweaving the Schering Public Offerings Timeline, with the ENHANCE Email exchanges

Some other discussions have set me to pondering a bit about the following question:

Would a "duly diligent" review of SGP's affairs, by these firms, have uncovered all of this, in August and September of 2007?

That is what will need to be decided in court, but it seems clear that ENHANCE was already very much overdue at that point, and Dr. Kastelein had complained pretty bitterly, and openly, as early as July 2007 (apparently, right in the middle of the preparations for the Schering $3.8 billion common stock, and 6% convertible share offerings). Those tandem-offerings were priced on August 10, 2007 -- and typically, it would take a few weeks of advance work, to get all of the "ducks in a row" for offerings of that size. On Aug. 20, 2007, ten days after pricing the equity offerings, and presumably during the preparations for the US and Euro-debt offerings (see the next paragraph, below), Dr. Kastelein and Schering-Plough/Merck executives agreed to convene an expert panel to decide what to do about the ENHANCE study, according to a Forbes report. Wow. But wait! -- these timelines just got even more entangled:

On Friday night, April 11, 2008, we learned that during the pendency of Schering's €2 billion Euro-Note offering (September 19 to 28, 2007), and shortly after the pricing of the $2 billion US Schering Senior Note offering (on September 13, 2007), Merck executives were trying to help Dr. Kastelein get an ENHANCE meeting scheduled (from September 14-17, 2007), because it appeared to the Merck people, that the Schering-Plough Research Institute executives were dragging their feet. So some e-mails were exchanged, and then, vulgar profanities flew.

Would a duly-diligent underwriter have found out about all of this, by asking pointed questions -- and demanding to see all ENHANCE study deliberation documents -- relative to the ENHANCE delays? This would have represented over 60 percent of all of Schering's profitability, at that time -- so it could hardly have gone unnoticed, as an "immaterial matter". Moreover, there would have been at least four eight separate final due-diligence bring-down calls, on which this could have come up: on August 2, 2007, August 10, 2007, September 13, 2007, September 28, 2007, and then again, at the closings of each of the offerings, three days after these dates. The very same "no material developments" statements had to be made per the relevant underwriting agreement (for example) -- when Schering received the wired next-day funds (of $3.8 billion, $2 billion, and €2 billion, respectively) for the offering proceeds, from these underwriters.

But, did any of those calls cover any of this? Could Schering have volunteered the information? Did it? Should it have? The courts will have to decide.

Those will be among the more important issues in the securities lawsuits.

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