Now a second Schering-Plough institutional investor, the Louisiana Municipal Police Employees Retirement System, has filed a putative federal class action suit against CEO Hassan personally, and each member of the Schering board of directors, for allegedly failing to act in the best interests of the shareholders, while conducting the negotiations for the nominal acquisition of Merck -- by reverse merger -- which, in substance, is the sale by Schering-Plough, of itself, to Merck. Earlier in March, Landesbank Berlin Investment GmbH did so. Additionally, each institution has filed motions to consolidate these putative class-action suits before Judge Cavanaugh. [An individual investor has also filed a very-similar suit.]
. . . .The Director Defendants’ fail[ed] to maximize shareholder value by ensuring that the price paid for Schering-Plough is the best price available for the Company. Rather, the Director Defendants have agreed to be acquired by Merck under terms that effectively prevent the Company from obtaining any competitive, potentially superior, bids. More specifically, the Director Defendants have agreed to pay Merck an enormous termination fee -- $1.25 billion -– if another company acquires Schering-Plough. This effectively hinders the likelihood of another suitor coming forward with a superior bid for the Company in that the termination fee adds an additional $.77 per share to the cost of any other acquirer to make a superior bid for Schering-Plough. In addition, the Director Defendants have agreed to not solicit any potential suitors, despite the fact that other potential acquirers may have been willing to pay more for Schering-Plough than the Company is receiving under the Merger Agreement with Merck. As a result, the Director Defendants have essentially capped the price of Schering-Plough at Merck’s offer.
These acts have prevented Plaintiff and other members of the Class from realizing the full value of their holdings in Schering-Plough stock. Rather than act in the best interests of the Company and its shareholders, the Director Defendants are preventing the Company and its shareholders from realizing the full potential value of the Company in violation of the fiduciary duties of due care, good faith, fair dealing and loyalty. . . .
And, from the amended Husarsky complaint:
28. Before entering into the merger agreement Schering-Plough was not for sale and even after receiving the Merck proposal did not open itself up to competitive bids. It also did not perform a “market check” to determine the value the company would likely fetch if it were sold or merged with another company. The Individual Defendants therefore did not satisfy their fiduciary duty to use all reasonable efforts to obtain the best possible transaction for Schering-Plough’s shareholders. . . .
33. In contrast to the benefits of the Reverse Merger to Merck and its shareholders, the transaction puts in jeopardy Schering-Plough’s 50% interest in the blockbuster arthritis treatment Remicade and a new arthritis therapy drug called Golimumab. Johnson & Johnson holds the other 50% interest in those pharmaceuticals and would have the contractual right to acquire Schering-Plough’s interest if Schering Plough undergoes a “change of control”. Defendants Clark and Hassan “structured the deal in legal terms as a takeover of Merck by Schering-Plough”, i.e., a reverse merger, in an attempt to avoid the change of control provision. There is no guaranty that this strategy will work if Johnson & Johnson challenges the transaction and attempts to invoke its change of control rights.
34. David S. Moskowitz, an analyst with Caris & Company, commented that Schering-Plough is so attractive to Merck because of “the number of drugs in their pipeline and the lack of generic competition”, but that the uncertainty over Remicade puts Schering-Plough shareholders at a disadvantage. . . .
Ouch. The Louisiana case (in blue, above) is 09-1247, complaint filed March 19, 2009 (the other, individual case, Husarsky, (in green, above) is 09-1244; amended complaint filed March 23, 2009) in the U.S. District Court for New Jersey, in Newark.
