A year after inking its $4.3 billion Akorn buyout agreement, Fresenius intends to scrap the deal. Akorn, though, isn’t having it, and analysts say a “legal battle royale” could be on the horizon.
The German drugmaker over the weekend said it was terminating its acquisition accord, and one reason it cited sounded quite ominous: An independent probe of Akorn's operations turned up “material breaches of FDA data integrity requirements,” Fresenius said. Overall, it cited a “failure to fulfill several closing conditions" as a reason for its pullout.
But analysts said there's an altogether different reason Fresenius might want out. The math on the deal has changed, with Akorn's financial expectations now falling far short of Fresenius' earlier estimates. And they point out that the FDA itself hasn't chided Akorn for data problems; the agency has cleared several of the drugmakers products.
Akorn has its own argument, of course. The investigation “has not found any facts that would result in a material adverse effect on Akorn’s businesses and therefore there is no basis to terminate the transaction,” it said in a statement, adding that the only remaining barrier to closing the deal is FTC approval.
To back up its argument, the Illinois company Monday said it had sued in Delaware Chancery Court to make sure Fresenius follows through on the merger pact.
The probe went public in February, when the two companies disclosed that they were investigating whether Akorn violated FDA drug development standards. The two companies issued quite different messages to shareholders, however. Akorn said the investigation likely wouldn't affect the deal, while Fresenius said it well might.
And now, with “clear resolve” apparent on both sides, “a protracted legal battle could potentially ensue,” Jefferies analyst David Steinberg wrote to clients.
Meanwhile, those industry watchers are wondering what Fresenius could have found that wouldn’t have triggered a single move by the FDA. Regulators haven’t taken any action against Akorn—and on the contrary, they’ve approved the company’s products as recently as March 16, RBC Capital Markets analyst Randall Stanicky pointed out in his own note to clients.
It’s easy to see why Fresenius might want out; the deal “math has clearly changed,” Stanicky noted, adding that Akorn is expecting 2018 earnings of $156 million, well below Fresenius’ initial outlook of $380 million ot $420 million. And the FTC may be requiring divestments that Fresenius isn’t keen on, pressuring the equation even further.
But “worsened economics do not impact FRE's obligation to close this deal. Hence the focus on ‘failure to fulfill closing conditions,’” Stanicky wrote.