US pension plan sues to halt Lilly buyout of ImClone
This article was originally published in Scrip
Executive Summary
Lilly's proposed $6.5 billion all-cash offer for ImClone Systemsis being challenged in a New York court, according to a regulatory filing by ImClone.
Lilly's proposed $6.5 billion all-cash offer for ImClone Systemsis being challenged in a New York court, according to a regulatory filing by ImClone.
The State-Boston Retirement System of Massachusetts filed the complaint on October 22nd in the Supreme Court of the State of New York. It accuses the ImClone board, including billionaire investor Carl Icahn, of "breaching their fiduciary duties" by not providing enough material information to shareholders to make an informed decision about whether to accept Lilly's offer of $70 per share. Lilly was also named as a defendant.
The suit, which seeks class-action status on behalf of ImClone shareholders, seeks a preliminary and permanent order enjoining the defendants from proceeding until more information is presented to stockholders.
In connection with the complaint, the plaintiffs' counsel wants the defendants to expedite the discovery and production of documents quickly. The court scheduled a hearing for October 30th. ImClone said it believed the complaint was without merit and it planned to defend itself vigorously against the suit.
Lilly's timetable
Lilly triumphed over Bristol-Myers Squibbin early October when ImClone turned down two lower BMS bids; Lilly plans to take on $2-3 billion in debt to finance the deal (Scrip Online, October 6th, 2008).
Boards of both Lilly and ImClone have approved the merger, and recommended that ImClone stockholders tender their shares. Around the time that the suit was filed, Lilly's CEO Dr John Lechleiter told Bloomberg Television: "Our tender offer is out, and if we get 90% uptake on the offer by November 20th, we think we'll be able to close that this year."
Dr Lechleiter reiterated rejected claims that releasing cash and taking on incremental debt might reduce Lilly's ability to conduct future deals. On the day the deal was announced, Standard & Poor's reaffirmed Lilly's credit rating, so access to commercial paper to finance the deal was not a problem, he said. There is also the fact that Lilly generated over $5 billion in operating cash flow last year, which provides lots of flexibility going forward for other deals, and the ability to handle any emergencies, he added.
Shortly after the deal was announced, Moody's Investor Service placed Lilly's long-term rating of Aa3, which is investment grade, under review for a possible downgrade (the company's Prime-1 short-term rating would be unchanged).
Moody's senior vice-president Michael Levesque stated: "The long-term success of the acquisition will be dependent on receiving expanded approvals for Erbitux as well as favourable execution of other products in ImClone's pipeline, both of which remain uncertain at this time."
Credit Suisse analysts recently downgraded their recommendation on Lilly, saying the deal was overpriced and would take several years longer to produce benefits than Lilly management indicated (Scrip Online, October 10th, 2008).