Watch Akorn ahead of trial on Fresenius merger

Akorn’s (AKRX) trial with Fresenius (FSNUY) over the companies’ $4.3B merger agreement is set to begin on July 9 in Delaware Chancery Court and analysts at RBC Capital and Deutsche Bank are weighing the risks and rewards. AKORN FILES COMPLAINT: In April, Akorn filed a complaint in court asking that Fresenius Kabi be required to fulfill its obligations under the companies’ definitive merger agreement. Akorn said at that time that “Fresenius’ attempt to terminate the transaction on the pretext that the findings from the ongoing investigation are a breach of the merger agreement is completely without merit. The previously disclosed ongoing investigation, of which we have voluntarily notified and are in regular communication with the Food and Drug Administration, has not found any facts that would result in a material adverse effect on Akorn’s business and therefore there is no basis to terminate the transaction…We intend to vigorously enforce our rights, and Fresenius’ obligations, under our binding merger agreement.” Akorn had agreed to be acquired by Fresenius in April 2017 for approximately $4.3B, or $34 a share, plus the assumption of approximately $450M of debt. In February, Fresenius began an investigation into alleged FDA data breaches at Akorn and in April, the company decided to terminate the merger agreement saying the decision was “based on, among other factors, material breaches of FDA data integrity requirements.” Following Akorn’s filing in court, Fresenius said its probe uncovered fraud and accused the company of submitting phony data to the FDA on its antibiotic drug. RBC SEES ‘PATH TO CLOSING’: In a note published this Monday, RBC Capital analyst Randall Stanicky said the trial should bring some clarity to the ongoing deal uncertainty. He said he continues to see a path to closing and notes risk and reward are both high, as Akorn’s stock is trading at $16-$17 versus the $34 deal price. The analyst added he has not yet seen persuasive evidence justifying the deal break based on his review of litigation documents and a call with legal experts. AKORN UPSIDE/DOWNSIDE ‘LOOKS INTERESTING’: On Tuesday of this week, Deutsche Bank analyst Gregg Gilbert noted that Akorn is seeking a ruling that Fresenius be required to complete its acquisition per the merger agreement. The analyst believes the upside versus downside profile for Akorn from the current price is worth considering. He sees three potential scenarios: Fresenius is required to acquire Akorn for $34 per share, representing 102% upside; the deal breaks and Akorn trades down to single digits on a standalone basis, or 69% downside; the companies settle for a price below $34 but well above the current stock price, which could yield more upside than downside. Gilbert believes Akorn’s upside/downside “looks interesting” ahead of the key event, he told investors. PRICE ACTION: Akorn was up 3.5% to $18.15, while Fresenius rose 1.4% to $20.41 in late morning trading on Friday. The trial is set to begin on Monday and is scheduled to last through Friday July 13 at this point, RBC recently told investors. “Before the Move” is The Fly’s recurring series of exclusive stories that identify potentially market moving events, along with analyst predictions, ahead of the news.

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