Biotech Values

[DewDiligence]

Can a merger that closed three years
ago be legally undone? Perhaps.

http://www.boston.com/business/globe/articles/2007/02/24

>>
Boston Scientific Aims to Oust
Founder of Acquired Unit

By Stephen Heuser
February 24, 2007

A contentious legal fight between Boston Scientific Corp. and a California subsidiary it bought in 2004 took a sharp twist this week when lawyers asked a judge to consider undoing the deal.

Boston Scientific of Natick bought Advanced Bionics Corp. for $742 million nearly three years ago, and since last summer has been locked in a legal battle with the company's founder, Alfred Mann. When Mann sold his company to the Natick medical device maker, he crafted an arrangement to keep day-to-day control of his company. He claims Boston Scientific executives wrongfully tried to push him out last July.

On Tuesday, New York federal judge Alvin Hellerstein agreed with Mann and issued an injunction temporarily blocking Boston Scientific from removing Mann from his position. He said the company must first pursue the lengthy dispute resolution process outlined in the original merger contract.

Although Boston Scientific is the parent company and holds final control of Advanced Bionics, Hellerstein also said this week that Boston Scientific executives could not replace Mann and his co-chief executive without Mann first approving his successor.

After Hellerstein issued his opinion, attorneys for Mann asked the judge to consider a new option: Scrapping the merger agreement.

Because the two parties "will likely be locked in battle for years," the request said, the judge should consider voiding the deal -- a legal measure called rescission.

A formal rescission, in which Advanced Bionics shareholders would pay the acquisition price back to Boston Scientific in exchange for independence, is relatively uncommon, said Randy Katz, a mergers and acquisitions lawyer who is not involved in the case. But the demand is often added to lawsuits as a legal bargaining chip, he said.

The judge has not yet ruled on whether he will allow the request for a rescission to be added to Mann's suit.

A lawyer for Mann declined to comment on the move to negate the deal. A Boston Scientific spokesman said yesterday the firm still hopes to resolve its differences with Advanced Bionics.

Advanced Bionics makes a line of futuristic implantable medical devices, including a cochlear implant to improve hearing and a spinal implant to control pain. It represents only a small portion of Boston Scientific's revenue, although executives have identified it as a growth area.

In addition to the $742 million Boston Scientific paid for Advanced Bionics, it also promised a long-term series of "earn-out" payments tied to sales of Advanced Bionics products. The chief beneficiary of the payments is Mann, 81, a billionaire medical inventor with a long history of founding and selling device companies.

Under the acquisition deal, Mann and his co-chief, Jeffrey Greiner, still manage Advanced Bionics under the oversight of an executive board. In a suit filed this summer, they alleged that Boston Scientific violated the terms of the acquisition by trying to push them out unilaterally.
<<