Fresenius Seeks $76 Million From Akorn in Buyout Dispute (1)

German health-care company Fresenius SE says it deserves at least $76 million from Akorn Inc. for hiding extensive quality-control problems that led it to cancel a $4.3 billion buyout of the U.S. generic drugmaker.

Akorn executives tried to cover up widespread problems at the company in an effort to close the deal quickly, Lewis Clayton, one of Fresenius’s lawyers, told a judge in Wilmington, Delaware, Wednesday.

“We thought these were honest people and they were not,” Clayton told Delaware Chancery Court Judge Travis Laster. Former Akorn Chief Executive Officer Raj Rai’s plan was to “take the money and go” before Fresenius found out the extent of the company’s problems, he said.

Rachel Chesley, an Akorn spokeswoman, declined to comment on Fresenius’s request for damages tied to the scuttled buyout.

Laster ruled in 2018 that Fresenius had valid reasons for canceling the buyout because Akorn hid a litany of miscues that cast doubt on the validity of its data and the profitability of its operations. The U.S. Food and Drug Administration later confirmed Laster’s finding that manufacturing and data-storage practices at the company were questionable.

The ruling prompted Rai’s ouster and sent Akorn shares plunging almost 60%. The company’s stock fell more than 3% to 29 cents Wednesday in Nasdaq trading. Fresenius shares were unchanged at 12:55 p.m. Thursday in Frankfurt trading.

In Wednesday’s hearing, Akorn’s lawyer Robert Baron said the drugmaker may have to file for Chapter 11 bankruptcy protection “within two weeks.” Baron said the law firm of Kirkland & Ellis was handling the bankruptcy preparations.

Akorn officials didn’t know the extent of the company’s regulatory problems until after Fresenius started an investigation and they shouldn’t be on the hook for damages and its would-be buyer’s legal fees, Baron said. If Laster finds Akorn liable for the legal fees, the total damage award might be as much as $100 million.

Laster declined to rule on the damages question, saying Akorn’s bankruptcy judge may want to take the issue up.

“I’m not feeling grabby about this in the least,” the judge told the lawyers and others on a Zoom teleconference. “I’m more than happy to yield the field” to the bankruptcy court.

The case is Akorn Inc. v. Fresenius Kabi AG, 2018-0300, Delaware Chancery Court (Wilmington).

(Updates with Fresenius shares in 6th paragraph)

--With assistance from Tim Loh.

To contact the reporter on this story:
Jef Feeley in Wilmington, Delaware at jfeeley@bloomberg.net

To contact the editors responsible for this story:
David Glovin at dglovin@bloomberg.net

Joe Schneider, Peter Blumberg

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