Investor Barry Berk said in a Delaware Chancery Court lawsuit that Covance’s Board of Directors should not have hired Goldman Sachs as an adviser for LabCorp’s $105-a-share offer because of a conflict of interest as the investment firm already represented another company Covance was considering acquiring, according to Bloomberg News.
But Melissa Thompson, spokeswoman for Covance, told Outsourcing-Pharma.com: “Covance believes this claim is without merit and intends to defend it vigorously.”
Berk also claims that the deal undervalues Covance, which has seen its stock bounce above $100 per share since the deal was announced, according to the Shareholders Foundation. But analyst Ross Muken of ISI was positive on the deal when it was first announced, noting that Covance management “was smart to monetize a large portion of the equity given peak valuation levels.”
Berk further claims that Goldman’s insistence that Covance accept the offer shows that it “succeeded in maximizing its own interests and the fees it can attain.” Berk contends that Goldman would make upwards of $40m from the deal, which is designed to broaden LabCorp’s base and provide it with new revenue streams.
In his suit, Berk claims Covance’s board failed to properly shop the drug-testing company around for the highest bidder and relied on tainted advice from Goldman Sachs in accepting LabCorp’s offer.
Covance directors originally sought to hire Goldman Sachs to help it market the company after getting an offer from an unidentified company, but the New York firm was already representing a firm Covance was considering buying, according to the suit.
Covance directors then hired Citigroup bankers to be financial advisers on the potential acquisition of another unidentified firm, Berk said in the complaint. He is asking a judge to block the deal from proceeding until Covance and LabCorp officials make additional disclosures about the deal.
Bloomberg News notes that Goldman has faced criticism in the past about its management of potential conflicts of interest. The firm moved in September to bar investment bankers from trading individual stocks and bonds, a person familiar with the policy change told Bloomberg.