Tuesday, December 30, 2014

In The Land Of Largely Meaningless Lawsuits. . . We See Cubist's Delaware Shareholders' Putative Class Actions

At least as taught in law school theory, under applicable Delaware corporate law (collapsing many, many layers of oft' times important details, and qualifiers, here), Cubist shareholders would have a claim for damages -- if their board of directors had sold the company at an egregiously low price, to Merck. Or, if these directors had a serious, substantial conflict of interest -- in engineering the same sale.

As I say -- that's the theory. But stacked against these below facts, the Delaware plaintiffs have almost no chance of success, in my experienced opinion. The facts here will include that Merck has agreed to pay a 35 per cent premium, and all of it in cash, over the Cubist shareholders' pre-announcement market price per share -- and that's. . . hefty.

But perhaps the most salient fact we will learn, here, is that Merck had agreed to pay that premium price, even if Cubist were to lose in the patent litigation surrounding Cubicin®, at the Delaware federal trial court level. Which is precisely what happened -- not even 28 hours after the deal was struck. And so we may fairly infer, that without the support of Merck's tender offer, priced at $102, Cubist shares would have fallen perhaps 20 per cent on that same day. Cubicin is far and away Cubist's most important product.

So it seems a little ridiculous. . . to suggest that this particular deal sells Cubist shareholders down the river.

I decided to mention this purported shareholder litigation for the first time, because this evening, as the SEC EDGAR window was closing, Merck amended its tender offer disclosures, for a third time. It did so, to advise the world that the plaintiff in one of these Delaware state court would-be class actions had amended his complaint, on the 29th -- adding allegations about various particulars of the sale process -- to Merck.

I will confidently predict that none of this will matter. This deal will close right on time, and right on target. [And as I've said from the jump, it will clear Hart Scott early.] Here's the bit from tonight's SEC filing:

. . . .On December 29, 2014, the plaintiff in the complaint captioned Lawrence Weinstein v. Cubist Pharmaceuticals, Inc., et. al. filed an amended class action complaint, which includes (i) additional allegations about the sales process and (ii) new claims alleging breaches of fiduciary duty by Cubist’s directors for purportedly omitting material information from the Solicitation/Recommendation Statement on Schedule 14D-9. Also on December 29, 2014, the plaintiff in the Weinstein action filed a motion for expedited proceedings and a supporting brief, requesting the Delaware Court of Chancery to schedule a preliminary injunction hearing and to permit the plaintiff to take expedited discovery. . . .

Now, a word -- to the Cubist shareholders filing these Delaware claims: I'd encourage you to speak very candidly (and pointedly) with your lawyers. I support your right to avail yourselves of the courts, but this seems a fools' errand. That is, it is likely that the only people who will net a recovery of any kind here will be these lawyers, and likely for only a small bit of their claimed legal fees, as Merck pays what will amount to a little nuisance money -- to send them packing.

But please, do not let your lawyers convince you that in paying a 35 per cent upside, and then hanging steady at 35 up, after a perhaps 20 per cent down-bubble event occurs (absent the offer's firmness on this point). . . is in any way unfair to you, the Cubist shareholders. These are just my opinions. . . but they should be yours, too. Now Namaste, and good night! Sleep well.

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