Law Office of Henry B. LaTorraca Civil Trial Attorney

California company responds to shareholder lawsuit threat

As a business grows, it may encounter an opportunity to merge or take over another company. Such growth may also mean that a company goes public and sells stock shares. 

Although due diligence efforts may produce extensive documentation and information about the target company, disputes can still arise. If a deal does fall through, a company may be facing a lawsuit, possibly from disgruntled shareholders. 

One California-based company, Allergan, has reportedly been threatened with such a lawsuit. Specifically, a shareholder who holds almost ten percent of the company’s shares has threatened to sue if the company moves forward with a purchase of Salix Pharmaceuticals Ltd. Since the company might use cash to acquire Salix, a shareholder vote might not be required. That, of course, means that the shareholder might not get input.

The shareholder claims that he and other shareholders should have input into whether Allergan acquires Salix. Allergan responded to the letter by confirming its awareness of its fiduciary duties.

In a corporation, the board of directors generally has a fiduciary duty under California’s corporate laws to make responsible and informed decisions on behalf of shareholders and in their best interests. Those duties include the duty of care and the duty of loyalty. If a fiduciary acts in a way that could adversely affect shareholders, he or she could be liable to shareholders.

However, an attorney that focuses on business disputes, such as a breach of fiduciary duty claim, knows that there are other requirements, such as a showing of harm. Simply disagreeing with the direction taken by a company’s board of directors may not constitute adequate grounds for a lawsuit. 

Source: Wall Street Journal, “Ackman Threatens to Sue Allergan if It Acquires Salix,” David Benoit, Sept. 23, 2014

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