The New York Supreme Court has ruled that the Espinosa brothers did not defraud Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) when it acquired Mexican company Rimsa Pharmaceuticals for $2.3 billion in 2015.
Judge Peter Sherwood accepted the position of the Espinosa brothers and dismissed Teva's claims regarding fraud by the sellers. However, the judge did not fully reject Teva's claims regarding breach of contract.
Teva said in response, "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."
Later today Teva will publish its financial results for the second quarter of 2017.
Teva acquired Rimsa in October 2015 for $2.3 billion and completed the deal several months later. But last year the Espinosa brothers sued Teva claiming that the Israeli company was trying to get out of the deal through false claims of fraud. In response, Teva countersued claiming fraud and breach of contract and claimed 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 looses as a result of this."
Teva charges that Rimsa defrauded the Mexican authorities for years and launched products that had not received the required approvals and that the fraud was so sophisticated that Teva did not discover it until it had bought the company itself. Previously, Teva had issued aggressive declarations against the Espinosa brothers, saying that, "Teva believes that the facts will speak for themselves and it will be seen that Rimsa deceived Teva, the regulators and the public."
Alongside the judicial proceedings in New York, a derivatives suit has been filed against Teva in Israel, the board of directors and senior executives including former CEO Erez Vigodman and former CFO Eyal Desheh and against Citigroup, which acted as Teva's consultant for the acquisition. The derivatives suit claims that Teva violated its duty for cautious and acted negligently in a way that damaged the company.
Teva bid against other companies to buy Rimsa and even at the time analysts claimed that Teva was overpaying. For example, UBS said that "This is one of the most expensive deals we have seen in the sector." However, UBS did say that there was logic to the deal in expanding Teva's operations in Mexico, an important market for the company.
Published by Globes [online], Israel business news - www.globes-online.com - on August 3, 2017
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