Stock Sold in Bundled Asset Sale Deemed Sold at Market Price
A district judge has dismissed a complaint alleging that Roivant Sciences Ltd., while a ten percent owner of Myovant Sciences Ltd., realized a short-swing profit by purchasing Myovant common stock and then, less than six months later, selling all of its Myovant stock, together with other assets, to a third party (Sumitomo).
The matching transactions occurred pursuant to a Memorandum of Understanding under which Sumitomo agreed to pay $3 billion for a bundle of assets which included Roivant’s Myovant common stock (representing 45% of the outstanding shares), equity in Roivant, and interests in various subsidiaries of Roivant. The MOU led to a definitive agreement which included as a closing condition that Sumitomo would be able to consolidate Myovant in its financial statements, meaning Sumitomo would need to own more than 50% of Myovant post-closing.
When the MOU and definitive agreement were signed, Myovant’s stock was trading in the $5 to $6 range. Just after the definitive agreement was signed, Myovant announced positive news, and the stock began trading in the $11 to $18 range. To fulfill the condition that Sumitomo own more than 50% of Myovant post-closing, Roivant purchased additional shares (the “Top-Up Shares”) in a private transaction and in the open market, all at prices within the new, higher trading range. The asset sale closed a couple of weeks later, and Roivant delivered its Myovant stock to Sumitomo (subject to a side agreement covering the Top-Up Shares, not relevant here).
The parties hadn’t allocated the $3 billion purchase price among the assets covered by the agreement, so it wasn’t clear how much Roivant received for its Myovant stock or whether the sale price exceeded the prices at which Roivant had purchased the Top-Up Shares. Roivant argued that the market price of the stock at the time the MOU and the definitive agreement were signed, which was well below the prices at which Roivant purchased stock, was the best indicator of the sale price. The plaintiff shareholders, on the other hand, argued that the parties must have assigned a higher value to the stock for two reasons: first, the stock represented a controlling interest in Myovant and therefore warranted a “control premium” and, second, Roivant must have known of the positive news Myovant was about to announce and would have shared that information with Sumitomo to negotiate a higher price.
The court deemed both of plaintiffs’ arguments to be based on “unsupported speculation.” While the plaintiff argued that it should be given an opportunity to conduct discovery and offer expert testimony on the value of the control premium, the court held that the complaint did not provide a reasonable foundation for concluding that discovery would produce evidence sufficient to support the claim.
Separately, the court rejected Roivant’s argument that the plaintiffs lacked constitutional standing to bring a 16(b) claim because they had not suffered an “injury in fact” as required under Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016). Another judge in the SDNY rejected a similar argument in 2017, in Roth v. Scopia.
-Alan Dye, Section16.net February 16, 2021
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