Three class-action lawsuits filed against Athenahealth by company shareholders over the company’s acquisition by one of its top investors were voluntarily dropped on Monday after the company released an amended proxy statement, according to an SEC filing and court documents.
The lawsuits—two filed in the District Court in Massachusetts and one filed in the District Court in Delaware—alleged that executives were holding back on sharing crucial information about how they arrived at a final sale price of the company of $5.7 billion. In November, officials announced Athenahealth would be acquired by Elliott Management, along with private equity firm Veritas Capital, for a price of $135 per share.
In a suit filed in the District Court in Delaware on Dec. 21, shareholder Michael Kent said, following that announcement, the EHR company released a proxy report with the SEC. But that proxy left out material information, causing it to be "false and misleading.”
Shareholder Richard Hamilton filed a similar class action lawsuit in the District Court in Massachusetts December 18, and shareholder Robert Crawford also filed a complaint, also in Massachusetts District Court, alleging similar violations of federal securities laws by Athenahealth executives and its board.
In the class-action suits, shareholders Kent and Hamilton sought to block the deal and require the release of the information, in addition to damages. In the lawsuit filed by Crawford, the shareholder sought to block the deal, or any vote on the deal, until the company disclosed the information.
Crawford’s class-action lawsuit also alleged that Athenahealth insiders are the primary beneficiaries of the deal, not the company’s shareholders. “Athenahealth’s directors and executive officers stand to reap substantial financial benefits for securing the deal with Veritas and Evergreen” the suit said.
According to Kent’s class-action suit, details not available in the SEC filing included Athenahealth's financial projections, as well as analyses performed by the company’s financial advisors in connection with the proposed transaction and line items used to calculate adjusted EBITDA and adjusted operating income.
"When a banker’s endorsement of the fairness of a transaction is touted to shareholders, the valuation methods used to arrive at that opinion as well as the key inputs and range of ultimate values generated by those analyses must also be fairly disclosed," the suit said.
That suit also alleged Athena failed to disclose whether it entered into any confidentiality agreements that contained standstill and/or “don’t ask, don’t waive” provisions that are or were preventing the counterparties from submitting superior offers to acquire the company.
"Without this information, stockholders may have the mistaken belief that, if these potentially interested parties wished to come forward with a superior offer, they are or were permitted to do so, when in fact they are or were contractually prohibited from doing so."
It also does not include indications of interest submitted to the company during the process leading up to the proposed transaction which the company previously said had “prices ranging in the $145 to $165 per share range,” according to the suit.
A representative for Athenahealth could not immediately be reached for comment regarding the dismissal of the lawsuits. The amended proxy included additional information about how the company calculated the final value of the transaction.
At one time, the company was valued at nearly $7 billion after activist shareholder Elliott offered cash to take over the health IT company, a value of $160 per share. The company's shares traded above $150 for much of the summer.
After it was reported UnitedHealth and Cerner both pulled out of the bidding process for the EHR company, the company's share price dropped into the $120s. They were trading above $130 a share on Wednesday.
According to the announcement about the planned acquisition, Elliott and Veritas plan to combine Athenahealth with Virence Health a value-based care solution that Veritas purchased for $1 billion from GE Healthcare earlier this year. The new company will operate under the Athenahealth brand.
The deal is expected to close in the first quarter, subject to regulatory and shareholder approval.
Athenahealth's sale left some of its customers nervous, saying the events over the last 12 to 18 months have negatively influenced the company’s ability to meet support demands. In a letter to customers, Executive Chairman Jeff Immelt said the two companies have “complementary portfolios and highly talented people,” adding that Athenahealth was “operating business as usual.”