NEW YORK (October 16, 2017) – On October 13, 2017, Labaton Sucharow LLP filed lawsuits on behalf of three sets of plaintiffs, consisting of investment entities affiliated with Mason Capital Management LLC (Mason), Westchester Capital Management, LLC (Westchester), and Hudson Bay Capital Management LP (Hudson Bay, collectively the plaintiffs) against biopharmaceutical company, AbbVie Inc. (AbbVie) and its Chairman and CEO, Richard Gonzalez (collectively, the defendants), in connection with alleged fraudulent activity related to AbbVie’s aborted 2014 agreement to acquire Shire PLC (Shire). The three actions filed in the Circuit Court of Cook County, Illinois, are: (1) Mason Capital L.P., et al. v. AbbVie Inc., et al., No. 2017L010406 (Ill. Cir. Ct.); (2) Hudson Bay Master Fund Ltd., et al. v. AbbVie Inc., et al., No. 2017L010407 (Ill. Cir. Ct.); and (3) WCM Alternatives: Event-Driven Fund, et al. v. AbbVie Inc., et al., No. 2017L010408 (Ill. Cir. Ct.).
The actions generally allege a fraudulent scheme perpetrated by the defendants to downplay and otherwise fail to disclose the critical importance of the tax benefits to the contemplated merger between AbbVie and Shire. The plaintiffs assert common law fraudulent misrepresentation and common law fraudulent concealment claims.
As the complaints allege in greater detail, the defendants promoted AbbVie’s proposed acquisition of Shire as a “strategically compelling” merger that “would create a larger and more diversified biopharmaceutical company with multiple leading franchises and significant financial capacity for future acquisitions, investment and enhanced shareholder distributions, and value creation.” The defendants emphasized that acquiring Shire would significantly diversify AbbVie’s product line, which was overwhelmingly reliant on a single drug (Humira®) for which the U.S. patent expired in 2016, and the improved product mix offered the potential for substantially increasing AbbVie’s share price.
As part of the proposed Shire acquisition, AbbVie would reincorporate outside the United States through a “tax inversion,” a controversial tax-reduction device then the subject of proposed governmental restrictions and intense political debate. But the defendants assured investors that tax benefits were “not the primary rationale” for the Shire deal, and they represented that AbbVie had “studied this transaction very, very carefully” and had concluded that the deal was “highly executable,” despite the potential for government action. The defendants again emphasized the “excellent strategic fit” between it and Shire, as well as the “compelling financial impact well beyond the tax impact.”
In making these statements about the rationale behind the deal, the defendants did not disclose that AbbVie’s Board had not conducted an evaluation as to whether it would close the transaction in the event the government took action that eliminated or reduced the tax-inversion benefits of the deal. The defendants knew that Shire investors (such as the plaintiffs) would be highly reluctant to support the transaction if they knew that AbbVie had not studied whether it would close the transaction in the event the government took action to foreclose the tax maneuver, especially in light of the controversy surrounding tax inversions and the wide expectation that the government might take such action. The defendants’ misrepresentations and concealment induced the plaintiffs to acquire interests and hold substantial positions in Shire securities.
When the truth was revealed after the close of the market on October 14, 2014, Shire common shares traded on the London Stock Exchange closed down nearly 30 percent, while Shire ADRs traded in the United States closed down more than 30 percent.
The Labaton Sucharow team leading the case includes partners Serena P. Hallowell, Michael P. Canty, and Eric J. Belfi, with assistance from attorneys David J. Schwartz, Eric D. Gottlieb, and Roger Yamada.
The Mason plaintiffs are Mason Capital L.P. and Mason Capital Ltd. The Westchester plaintiffs are WCM Alternatives: Event-Driven Fund; WCM Master Trust; The Merger Fund; and The Merger Fund VL. The Hudson Bay plaintiffs are Hudson Bay Master Fund Ltd. and Hudson Bay Merger Arbitrage Opportunities Master Fund Ltd.