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Rubinstein v. Gonzalez

United States District Court, N.D. Illinois, Eastern Division

March 10, 2017

MURRAY RUBINSTEIN, JEFFREY F. ST. CLAIR, WILLIAM MCWADE, HARJOT DEV and VIKAS SHAH, individually and on behalf of all others similarly situated, Plaintiffs,


          Robert M. Dow, Jr., United States District Judge

         Plaintiffs Dawn Bradley, Murray Rubinstein, Harjot Dev, and Vikas Shah (collectively, “Plaintiffs”) bring this class action lawsuit against Defendants Richard Gonzalez (“Gonzalez”) and AbbVie, Inc. (“AbbVie”) (collectively, “Defendants”) for alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Act”). See 15 U.S.C. §§ 78j(b) and 78t. Before the Court is Defendants' motion to dismiss Plaintiff's amended complaint [42]. For the reasons stated below, Defendant's motion [42] is denied. This case is set for further status hearing on March 29, 2017 at 9:00 a.m.

         I. Background

         For purposes of Defendants' motions to dismiss, the Court assumes as true all well-pled allegations set forth in Plaintiff's amended complaint. See Cincinnati Life Ins. Co. v. Beyrer, 722 F.3d 939, 946 (7th Cir. 2013). In addition, the Court may consider the documents referred to and quoted in the amended complaint, some of which Defendants attach to their memorandum in support of the motion to dismiss. See [44-1] through [44-3]; see also Geinosky v. City of Chicago, 675 F.3d 743, 745 n.1 (7th Cir. 2012); Wright v. Associated Ins. Companies Inc., 29 F.3d 1244, 1248 (7th Cir. 1994) (“[D]ocuments attached to a motion to dismiss are considered part of the pleadings if they are referred to in the plaintiff's complaint and are central to his claim. Such documents may be considered by a district court in ruling on the motion to dismiss.”).

         AbbVie is a biopharmaceutical company with its principal executive offices in Chicago, Illinois. On June 20, 2014, AbbVie publicly confirmed media reports that it had approached another biopharmaceutical company, Shire (which is not a party to this lawsuit), with an initial proposal for a merger. Shire has its principal executive offices in Dublin, Ireland.

         On June 25, 2014, AbbVie issued a press release announcing that the AbbVie Board of Directors believed that the Shire merger had “compelling strategic rationale for all shareholders.” [38] at 9. The press release listed five rationales, none of which mentioned the tax benefits that AbbVie might enjoy by structuring the transaction as a corporate inversion. See id. at 8-9. A corporate inversion is a transaction in which a U.S.-based multinational entity restructures so that the U.S. parent is replaced by a foreign parent, in order to avoid paying U.S. taxes. See id. at 19. According to the amended complaint, this omission was made and other strategic rationales were listed “to avoid the negative stigma associated with tax inversion in the then (and now) current political climate, and to conceal the fact that the inversion was so important to the Combination that it would not proceed if the controversial tax benefits were lost.” Id. at 10. The amended complaint further asserts that investors had no reason to doubt that the proposed merger was strategic, “[g]iven that AbbVie was highly dependent on its Humira patent, a drug that accounted for 66% of its sales, and that patent was set to expire in 2016.” Id.

         Also on June 25, 2014, AbbVie issued a presentation titled “AbbVie's proposed combination with Shire: creating immediate and long-term value for all shareholders.” [38] at 9. AbbVie provided seven strategic reasons for the merger: (1) “Larger and more diversified biopharmaceutical company with multiple leading franchises”; (2) “Adds leading franchises within specialty therapeutic areas, including rare disease and neuroscience”; (3) “Broad and deep pipeline of diverse development programs and enhanced R&D capabilities”; (4) “Global resources and experienced teams positioned to continue to deliver strong shareholder returns to both AbbVie and Shire shareholders”; (5) “Transaction expected to achieve a competitive tax structure and provide New AbbVie with enhanced access to its global cash flows”; (6) “Transaction expected to be accretive to adjusted EPS in the first year following completion, and will increase to more than $1.00 per share by 2020”; and (7) “Significant financial capacity for future acquisitions, investment and opportunity for enhanced shareholder distributions and value creation.” [38] at 11 (emphasis added).

         On July 18, 2014, AbbVie disclosed that its Board had agreed to terms for the merger, which was valued at approximately $54 billion. AbbVie also disclosed that, in connection with the merger, AbbVie Ventures, LLC had entered into a Cooperation Agreement with Shire, which would require AbbVie to pay a termination fee of $1.64 billion if (1) the AbbVie Board withdrew or modified its recommendation of the merger; and (2) either (a) AbbVie stockholders voted and did not adopt the merger agreement at a stockholder meeting following the Board's change in recommendation, or (b) no stockholder meeting took place with 60 days after the Board's change in recommendation. [38] at 12. However, if the stockholders rejected the combination without the Board changing its recommendation, then the Cooperation Agreement only required AbbVie to reimburse Shire for its actual costs in an amount no less than $500 million or more than $545 million. Id. at 12-13. The Cooperation Agreement required AbbVie to pay the termination fee to Shire within 7 days of the event causing the breakup. The Cooperation Agreement “did not contain any provision to allow AbbVie to terminate the contract in the event of a tax law change despite the fact that other such provisions had been included in similar transactions.” Id. at 13.

         Also on July 18, 2014, AbbVie and Gonzalez hosted a telephonic conference with investors. Gonzalez told investors that the “transaction has significant, both strategic and financial, rationale, ” and while “[t]ax is clearly a benefit, * * * it's not the primary rationale for this.” [38] at 14 (emphasis by Plaintiffs). Gonzalez also noted that, from his point of view, the “debate” over inversions “would be more appropriately shifted toward tax reform and making companies more competitive in the global economy that we operate in, ” because “[c]ompanies like ours need access to our global cash flows to be able to make investments all around the world, but specifically to be able to make investments in the United States.” Id. at 14. Gonzalez further stated that AbbVie was “at a disadvantage versus many of [its] foreign competitors” and opined that this is the “debate that we should be having around inversion and all aspects of the U.S. tax code.” Id. at 15. A call participant from Credit Suisse then asked a follow-up question about the “discussions in Washington around inversions.” Id. He stated: “There is obviously the breakup fee you guys mentioned around this deal. I'm just trying to understand kind of how important the ex-US domiciling for tax purposes is to this deal and if something were to come up where retroactively you are not able to actually change your domicile outside the US, is that something where the breakup fee would not restrict you from then going ahead and breaking up this deal and not going forward?” Id. Gonzalez responded that he was “somewhat limited in what we can say, ” but continued: “this is a transaction that we believe has excellent strategic fit and has compelling financial impact well beyond the tax impact. We would not be doing it if it was just for the tax impact. This is an additional benefit that we have. We have looked carefully at that aspect of it and we believe it is executable at a high level.” Id. at 16 (emphasis by Plaintiff).

         According to the amended complaint, Gonzalez's statement that the tax benefit was not the primary rationale for the Combination was false and misleading, as demonstrated by subsequent events described below. The amended complaint further asserts that Gonzalez's statement that he was “limited in what we can say” about whether AbbVie would break up the deal if it were not able to change its domicile for taxing purposes was “not enough to provide him a safe harbor, ” because “[g]iven his voluntary comments regarding the impact of the tax inversion, he had a duty to then speak the whole truth about the significance of the tax implications on the Combination.” [38] at 16.

         On August 5, 2014, the Treasury Department announced that it was “reviewing a broad range of authorities for possible administrative actions to limit inversions as well as approaches that could meaningfully reduce the tax benefits after inversions took place.” [38] at 17.

         On August 21, 2014, AbbVie Private Limited issued the Form S-4 for the proposed transaction, signed by Gonzalez.[1] The Form S-4 listed ten benefits of the transaction:

. the creation of a global market leader with unique characteristics and a compelling investment thesis by combining two companies with leadership positions in specialty pharmaceuticals;
. the opportunity to leverage AbbVie's capabilities and infrastructure to make Shire's pipeline and products more successful than its stand-alone prospects;
. the incremental sustainable leadership positions New AbbVie would be expected to have within high value market segments of significant unmet need, including immunology, rare diseases, neuroscience, metabolic diseases and liver disease (HCV), as well as multiple emerging oncology programs;
. the strong complementary fit of Shire's platform with AbbVie's existing specialty focus, including physician access relationships, regulatory and market access capabilities, and patient-centric focus and the potential to develop global franchises from Shire's platform with AbbVie's existing expertise and development capabilities across areas such as gastrointestinal medicine, neuroscience, and rare oncology indications, combined with AbbVie's resources and scale;
. the potential realization of tax and operational synergies by New AbbVie as a result of the Combination;
. the immediate broader geographic penetration and scale of Shire as a result of the Combination, by leveraging AbbVie's existing, well-established global infrastructure across more than 170 countries, including commercial, regulatory and medical affairs, and market access in key emerging markets; . the enhancement of innovation and end-to-end R&D capabilities by leveraging AbbVie's established R&D infrastructure and expertise, which the AbbVie Board expects will generate:
o a best-in-class product development platform, with near-term new product launches in liver disease (HCV), neuroscience, immunology, oncology, rare diseases, ophthalmology, and renal; and
o expertise and infrastructure, including regulatory, health economics and outcomes research, and market access to expand product indications to meet patient needs;
. the combined financial strength and R&D experience of New AbbVie;
. the Combination's expected accretion to AbbVie's adjusted earnings per share in the first year following completion, growing to above $1.00 per share by 2020, with material ongoing financial and operating benefits;
. the opportunity for New AbbVie to have an enhanced financial profile and greater strategic and financial flexibility as compared to AbbVie and Shire on a ...

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