DUBLIN-based Burlington Loan Management - a unit of US hedge fund Davidson Kempner - is suing Ireland-headquartered drug firm Perrigo and its former chief executive, claiming they made material misrepresentations and omissions as Perrigo battled a hostile $27bn (€25bn) takeover approach from Mylan in 2015.
Burlington owned 231,737 shares in Perrigo at the time the takeover approach was made, which were valued at $57m (€52m) based on the final cash and share offer made by Mylan.
The Davidson Kempner unit has previously been involved in the acquisition of assets including bonds in Irish banks and debt linked to Belfast's Titanic Quarter.
Generic drug maker Perrigo, whose products include painkiller Solpadeine and quit smoking aid Niquitin, has been based in Ireland since 2013, when it acquired Elan for $8.6bn.
Perrigo's chief executive at the time, and when Mylan made its takeover approach, was Joe Papa. Both he and Perrigo's former chief financial officer, Judy Brown, are being sued by Burlington in the New Jersey legal action launched on Wednesday.
Burlington has claimed during the takeover approach period, Perrigo and its CEO and CFO manipulated a Perrigo profit forecast that "stood in stark contrast" to "promises they made to investors" under Irish Takeover Panel rules.
Because Perrigo is an Irish company, Mylan's 2015 approach started an offer period under Irish takeover rules, which strictly governed both Mylan's bid and Perrigo's defence against the bid, notes Burlington.
"To discourage Perrigo shareholders from accepting Mylan's offer, defendants repeatedly made material misrepresentations and omissions about four key areas," claims Burlington in its complaint lodged with the US court.
It claims those four areas included the "integration and over-valuation of Perrigo's latest acquisition, Omega Pharma", as well as Perrigo's organic growth, "collusive pricing and price pressure in Perrigo's most profitable division, generic drugs", and "the deteriorating value of Perrigo's largest financial asset, a royalty stream for the drug Tysabri".
A treatment for multiple sclerosis, Tysabri was Elan's star product.
"To fight Mylan's offer, defendants touted and spoke at length regarding the integration and prospects of Omega, making false and misleading statements and omissions regarding the status of the integration and the key role Omega would play in Perrigo's growth," Burlington has alleged.
Lawyers for Burlington added in their 130-page complaint: "The concealed problems with Omega were so profound that the company [Perrigo] ultimately took impairment charges totalling more than $2bn, or nearly half of the total purchase price for Omega."
Perrigo, which now has a market capitalisation of $8.1bn, announced a deal in 2014 to buy over-the-counter drug maker Omega for €3.6bn.
"Defendants touted synergies with Omega as central to Perrigo's growth claims, even though defendants knew or recklessly disregarded that there were deep problems with the Omega integration and the underlying assets," Burlington has asserted.
It adds in its complaint: "Omega was substantially under-performing, the integration had stalled and was marred by pervasive problems, and the synergies and growth projections touted by Perrigo and its executives, including Papa and Brown, were an illusion."
Joe Papa is now the chairman and chief executive of Bausch Health, while Judy Brown is the senior vice- president of corporate affairs with Amgen.
Burlington claims that Perrigo's shares slumped 62pc when the takeover offer was repelled, and "robbed investors of the opportunity to fairly evaluate and participate in a takeover offer worth more than twice the current share price".
"Defendants Papa and Brown, in particular, were cushioned from this blow," Burlington has claimed. "They were awarded millions of dollars in special bonuses for their roles in defeating the Mylan offer."
Burlington claims that in February 2016, just three months after Mylan's failed takeover bid, "Perrigo reported fourth quarter 2015 revenue, profits, and margins that were all well below what the defendants had led investors to believe the company would achieve".
In its last financial year, Perrigo reported revenue of $4.7bn (€4.3bn) and adjusted operating income of $897m (€825m).
In 2018, the Revenue Commissioners here hit Perrigo with a €1.64bn tax claim related to the drug company's acquisition of Elan.
Eight months before its acquisition by Perrigo, Elan had sold a 50pc stake in Tysabri to US pharma firm Biogen. Elan received an upfront cash payment of $3.25bn from Biogen, as well as an on-going royalty stream.
The upfront proceeds from the sale were counted by Elan as trading income, which attracts a 12.5pc corporation tax rate.
But the Revenue Commissioners has argued that the cash proceeds should have been treated as capital gains, taxable at 33pc.
Perrigo has appealed the Revenue's decision, and an appeal is set to take place in April, the 'Sunday Independent' reported last month.
Perrigo has stated that it believes the Revenue Commissioner's assessment is "wrong as a matter of law".