Two months after Oracle announced plans to buy Cerner, the health IT company is now being sued by a pension fund over concerns that the company's leadership "stymied potential bidders" while pushing forward a deal with Oracle and didn't explore other alternatives.
The lawsuit, filed by the Operating Engineers Construction Industry and Miscellaneous Pension Fund, requests files from Cerner to "investigate possible wrongdoing and/or breaches of fiduciary duty" by the company's board.
The complaint seeks documents from Cerner under a Delaware law giving corporate shareholders broad inspection rights if they credibly suspect bad faith or self-dealing.
In December, Oracle announced plans to buy Cerner in a deal valued at $28.3 billion, one of the software company’s biggest acquisitions ever and one of the largest takeovers this year.
In the lawsuit, first reported by Bloomberg Law, the plaintiffs argue that Cerner's board and management “expressed a clear preference for Oracle and did not follow reasonable steps to obtain a value-maximizing transaction,” according to the complaint filed Feb. 22 in Delaware’s Chancery Court.
"Despite the lack of a sales process, the board also failed to secure a 'go shop' provision in the merger agreement, which would have enabled Cerner to solicit potential counter-parties and obtain a better sales price. The board further agreed to an onerous termination fee of $950 million, virtually guaranteeing that no other potential counterparty would even attempt to acquire the company," the plaintiffs wrote in the complaint.
Cerner's board failed to conduct a meaningful market check, the suit says. “This series of events raises questions as to the board’s discharge of its fiduciary duties," the plaintiffs allege in the complaint.
The suit also says that in negotiating the merger with Oracle, Cerner’s senior management was "primarily interested not in maximizing shareholder value but in enhancing their own potential compensation packages." The suit mentions that CEO David Feinberg, CFO Marc Erceg, CTO Jerome Labat and former CEO Brent Shafer are entitled to more than $64 million in golden parachute payments should their employment be terminated post-merger.
The health IT company reported its fourth-quarter 2021 revenue came in "slightly below expectations" as a result of a COVID-related project delay and lower technology resale.
Cerner's fourth-quarter revenue came to $1.45 billion, up 4% compared to $1.39 billion in the fourth quarter of 2020, according to its financial release. The company's GAAP-diluted earnings per share was 59 cents, a 28% increase from the fourth quarter of 2020, with an adjusted diluted EPS of 93 cents.
The company reported fourth-quarter earnings of $174.8 million. On a per-share basis, Cerner said it had net income of 59 cents. Earnings, adjusted for one-time gains and costs, came to 93 cents per share, which beat Wall Street estimates.
Given the proposed acquisition by Oracle, Cerner said it would not be hosting an earnings conference call, issuing prepared remarks, providing financial guidance nor repurchasing shares.
The company's 2021 revenue grew 5% to $5.77 billion compared to $5.5 billion in 2020.
For the year, Cerner's adjusted diluted earnings per share increased 18% to $3.35. But GAAP-diluted EPS was down 27%, with net earnings also dropping from $780 million in 2020 to $555 million in 2021.
"For the full year we delivered solid revenue growth, expanded adjusted operating margin by 180 basis points, increased adjusted diluted EPS by 18% and generated record GAAP cash flow from operating activities of $1.8 billion and free cash flow of $1.2 billion, which were up 23%and 37%, respectively, over 2020,” said Mark Erceg, executive vice president and chief financial officer, in a statement.
“In addition, we repurchased $1.5 billion of shares at an average purchase price of $74.96, increased our quarterly dividend by 23%and successfully closed and integrated Kantar Health—which is pacing well ahead of its acquisition economics," he said.
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