As healthcare companies rush to bulk up via mergers and acquisitions, they're almost always hit with shareholder lawsuits. Now that Walgreens has given up on its efforts to buy rival drugstore chain Rite Aid, it should ready itself for membership in the growing club of defendants.
What it can also expect: little material impact in damages, though only after spending money on litigation lawyers.
Because Walgreens' deal was stymied by antitrust regulators rather than by management's cold feet, it's less vulnerable to angry investors, says Kevin LaCroix, an attorney and executive vice president at R-T ProExec in Beachwood, Ohio, which focuses on management liability. Nonetheless, "never underestimate the creativity of the claims warriors," he says. "There are always investors who are disappointed the deal didn't go through, and there are always lawyers willing to work with them."
These shareholder lawsuits are based on a U.S. Securities & Exchange Commission rule that prohibits any act or omission that results in fraud or deceit related to the sale or purchase of a security—in other words duping investors into thinking their stock was worth more than it turned out to be. In order to move forward, such cases "must establish, among other things, a material misrepresentation or omission and a wrongful state of mind, meaning conscious misconduct or severe recklessness," says Michael Lohnes, a partner in the Chicago office of Katten Muchin Rosenman.
Walgreens Boots Alliance CEO Stefano Pessina repeatedly voiced confidence behind his plan, originally worth $9.4 billion, to acquire Rite Aid and surpass CVS as the nation's biggest drugstore company. Even as the regulatory process dragged on and the Federal Trade Commission pressured Walgreens to agree to sell off more Rite Aid locations to reduce its marketplace clout, Pessina said he was "still optimistic" as recently as April.