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Merck Closes $1.1B Sirna Acquisition After RNAi Shop Tentatively Settles Three Lawsuits

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Merck announced last week that it has closed its $1.1 billion cash acquisition of Sirna Therapeutics, but only after Sirna was able to tentatively settle a trio of shareholder-led lawsuits seeking to block the acquisition. The suits accused Sirna brass of double-dealing in their negotiations with Merck.
 
According to a Sirna filing with the US Securities and Exchange Commission late last month, the company reached a settlement-in-principle with the shareholders that included minor modifications to the acquisition agreement and Sirna’s payment of certain fees and expenses associated with the lawsuits.
 
As part of the proposed settlement, Sirna has also released additional information about how it negotiated its deal with Merck and disclosed that it had been in negotiations with another company about a possible buyout.
 
“We and the other defendants vigorously deny all liability with respect to the facts and claims alleged in the lawsuits,” Sirna said in the SEC filing. “However, to avoid the risk of delaying or otherwise imperiling the merger, and to provide information to our stockholders at a time and in a manner that would not cause any delay of the merger, we and our directors agreed to the settlement.
 
“We … further considered it desirable that the actions be settled to avoid the substantial burden, expense, risk, inconvenience, and distraction of continued litigation and to fully and finally resolve the settled claims,” the filing states.
 
As part of the settlement agreement, “certain modifications are being made to the merger agreement and certain additional disclosures are being made to our stockholders.” Among the amendments to the merger agreement was a reduction in the termination fee Sirna would have been required to pay Merck if it withdrew from the deal. The amount dropped to $38 million from $42.1 million, according to the SEC filing.
 
The settlement-in-principle also required Sirna to make additional disclosures to its investors to address the issue of whether Sirna’s management sought the best price possible for the company when it negotiated the acquisition with Merck.
 
According to the supplemental information provided by Sirna, after the company had received an initial offer from Merck, it received a written offer from another company proposing to acquire Sirna for between $10 and $12 a share, which was higher than Merck’s original offer.
 
Merck later sweetened its acquisition offer to $13 a share, which was “higher than the highest range of any third-party offer,” Sirna noted in its SEC filing. Additionally, “no other interested party submitted a proposal after Merck’s final proposal was received,” the company said.
 
The settlement-in-principle also calls for Sirna to pay $500,000 to the plaintiffs’ legal counsel to cover fees and expenses.
 
“There can be no assurance that the parties will ultimately enter into a written settlement agreement or that the court will approve the settlement even if the parties were to enter into such an agreement,” Sirna warned in its SEC filing. “If the court does not approve the settlement, the proposed settlement as contemplated by the agreement-in-principle may be terminated.”
 
Buy-Out Blowback
 
Late last year, Merck announced that it would acquire Sirna for $13 per share, representing a greater than 100-percent premium over the $6.45 closing price of Sirna’s shares the day before the deal was disclosed (see RNAi News, 11/2/2006).
 
While investors generally responded positively to the deal, with Sirna’s stock nearly doubling the day after it was announced, three were not so pleased. As reported by RNAi News, three of the RNAi shop’s shareholders filed separate lawsuits attempting to block the sale and accusing Sirna’s management of negotiating the deal for their own financial benefit (see RNAi News, 11/16/2006).
 

“We and the other defendants vigorously deny all liability with respect to the facts and claims alleged in the lawsuits. However, to avoid the risk of delaying or otherwise imperiling the merger … we and our directors agreed to the settlement.”

The suits, which were filed by two individual stockowners and Sheet Metal Workers Local #218 Pension Fund in the Superior Court of California, County of San Francisco, allege that Merck’s purchase of Sirna “is wrongful, unfair, and harmful to Sirna’s public stockholders, and represents an effort by [Sirna’s directors] to aggrandize their own financial position and interests” at the expense of ordinary shareholders.
 
The lawsuits specifically charge that Sirna’s President and CEO Howard Robin and the firm’s board members violated their fiduciary duties “insofar as they stood on both sides of the transaction and engaged in self-dealing and obtained for themselves personal benefits, including personal financial benefits.”
 
Sirna’s directors “are unwilling to share the lion’s share of [the company’s potential success] with the company’s shareholders, choosing instead to sell the company to Merck … and cash out Sirna shareholders for inadequate consideration,” the lawsuits charge.
 
The lawsuits seek among other things class-action status, a ruling that the proposed acquisition of Sirna by Merck is “unlawful and unenforceable,” and an enjoinder from that the Superior Court of the State of California, County of San Francisco, preventing Sirna from consummating the deal “unless the company adopts and implements a procedure or process to obtain the highest possible price for shareholders.”
 
Though officials from Merck were not available to comment on the litigation or the proposed settlement, in an SEC filing dated one week before the closing of the acquisition Sirna stated that on Dec. 20 the company and plaintiffs “reached an agreement-in-principle … regarding the settlement of these lawsuits.”

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