Teva lawsuit over Rimsa buy fizzles out

Teva Photo: Reuters Ammar Awad

Teva has apparently received an insubstantial sum paid in compensation.

The legal proceedings that began with severe allegations of fraud and a promise to "respond in force" ended with a whimper. Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) and the Espinosa brothers, who sold Mexican pharmaceutical company Rimsa to Teva, have reached a settlement ending the litigation between them, after a New York judge dismissed most of Teva's allegations eight months ago.

Teva acquired Rimsa for $2.3 billion in 2015, and completed the acquisition several months later. Six months after that, the Espinosa brothers sued Teva, saying that it was trying to get out of the deal by making allegations of fraud. In response, Teva filed a countersuit for fraud and breach of contract, alleging that (the) "defendants lied and concealed exceptional legal violations in order to receive $2.3 billion for the sale of the company and its IP. The plaintiff (Teva) suffered substantial losses as a result of this."

Teva asserted that the damage caused it was greater than the cost of the acquisition, and the company stated, "Teva believes that the facts will speak for themselves and it will be seen that Rimsa deceived Teva, the regulators and the public." Teva alleged at the time that Rimsa had defrauded the authorities in Mexico for years, and had launched products without the necessary approval. Teva said that the fraud was so sophisticated that the company had not discovered it before it acquired Rimsa.

Last summer, a New York court accepted the Espinosas' argument that they had sold the company to Teva, and dismissed Teva's arguments about fraud on the part of the sellers in the deal, which constituted most of Teva's claims. At the same time, the judge did not completely dismissed the allegations concerning breach of contract, in effect leaving Teva an opening to obtaining a few million dollars in compensation, had it won the legal proceeding.

At the time of the New York judgment, Teva stated, "The decision does not dismiss all the claims in the suit. Teva's suit against the Espinosa brothers regarding breach of contract stemming from their false representations will move forward based on the legal documents disclosed." Nevertheless, sources inform "Globes" that the parties reached an agreement several weeks ago ending the litigation between them. Teva confirmed this today, saying, "Concerning the lawsuit concerning Rimsa, which was heard in New York, Teva confirms that the parties have reached an agreed settlement of the dispute, and that the lawsuit has been concluded."

According to documents filed with the court, the legal proceedings ended with no payment or compensation. However, Teva has apparently received some compensation amounting to an insubstantial sum, which it has yet to report.

The conclusion of the legal proceedings brings to close a dismal affair for Teva. The acquisition of Rimsa, which was regarded as expensive at the time, was meant to expand Teva's activity in growing markets, in this case Mexico. Teva competed for the acquisition against other companies, and it appears that due diligence was not carried out in full. Since the acquisition, Teva has written off over $1 billion of its investment in Rimsa, recognizing decreases in value of $900 million in 2016 and $153 million in 2017, and it cannot be ruled out that more of this investment will be written off in the future. The acquisition of Rimsa was made shortly after Teva announced the largest acquisition in its history - the acquisition of Actavis for nearly $40 billion, also regarded as expensive at the time and questionable in retrospect.

Published by Globes [online], Israel business news - www.globes-online.com - on April 9, 2018

© Copyright of Globes Publisher Itonut (1983) Ltd. 2018

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Teva Photo: Reuters Ammar Awad
Teva Photo: Reuters Ammar Awad
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