(CN) - Shareholders of pharma firm SciClone filed a class action claiming the proxy statement for a pending $605 million buyout withholds key information about the deal and the negotiations that led to its approval by the company's board.
The lawsuit, filed in the Northern District of California, alleges that deficiencies in the proxy statement prevent SciClone shareholders from evaluating the fairness of Silver Biotech Investment's buyout of the company.
Under the deal announced in June, Silver will acquire SciClone along with its hepatitis drug Zadaxin for $11.18 per share cash. Silver is a consortium purportedly comprised of GL Capital Management GP, Bank of China Group Investment Ltd., CDH Investments, Ascendent Capital Partners and Boying Investment Ltd.
Among other changes, the proposed shareholder class wants the proxy statement to be revised to disclose any communications between the buyer group and SciClone related to ongoing employment for SciClone executives following the merger. Shareholders claim this information is crucial for them to evaluate "potential conflicts of interest" of management and the board in pursuing the deal.
As it stands, the company asserts in the proxy statement that during merger negotiations, "the parties did not discuss any employment or similar arrangements for any of the Company's executives."
"As such, while certain members of management may continue to remain employees of the Company after the completion of the transaction, no employment agreements or similar arrangements were or have been implemented in connection with discussions with the Buyer Consortium."
The class claims those statements are "at best misleading."
While formal employment agreements may not have been reached, "it is clear that some communications took place" given the continued employment of SciClone executives appears to be a foregone conclusion, the shareholders argue.
Even one-sided written communications concerning post-merger employment must be disclosed, they say.
The proposed class also wants to know whether any of the 47 prospective bidders mentioned in the proxy had signed restrictive agreements that are preventing them from submitting a bid superior to Silver's.
Other deficiencies in the proxy statement include alleged ambiguities in the section covering SciClone financial adviser Lazard Freres & Co.'s analysis of the buyout. For instance, while Lazard used "estimated unlevered free cash flow" numbers in its analysis, the proxy statement does not break down those figures for shareholders to see.
Named plaintiffs Travis Daley and Matthew Sciabacucchi are represented by Rosemary Rivas of Levi & Korsinsky in San Francisco.
According to the Daley pleading, the buyer group had at one point suggested an informal offer to increase the buyout price to $11.48-a-share, contingent upon certain merger terms.
After receiving an April 28 bid reaffirming the original $11.18 buyout price, Lazard reached out to the buyer consortium's representative about why the mulled-over 30 cent acquisition price increase was not still on the table.
The "consortium's representative stated that this was due to changes in market conditions, including the fact that as of February 17, 2017, SciClone's primary product, Zadaxin, was no longer covered by basic medical insurance in China," according to the narrative in the Daley pleading.