Legal Issues Threaten Two Acquisitions

Deals between Mylan Laboratories and King Pharmaceuticals, and between General Electric and InVision, are up in the air.
Stephen TaubNovember 2, 2004

The proposed $4 billion acquisition of King Pharmaceuticals Inc. by Mylan Laboratories Inc. appears to be in jeopardy following King’s announcement late last week that the company may need to restate its earnings.

Before King closes its third quarter, the Bristol, Tennessee-based company will evaluate its returns reserve to determine whether it is “prudent,” said chief financial officer James Lattanzi in a statement. “Accordingly,” added Lattanzi, “the financial results that we are reporting today are preliminary and subject to the results of the company’s ongoing evaluation of its returns reserve.”

King’s share price dropped more than 8 percent on the news.

Carl Icahn shook up things even more on Monday. In a letter to the board of directors of Canonsburg, Pennsylvania-based Mylan, the financier and corporate raider wrote that completing the deal with King “is extremely risky and could lead to meaningful diminution of shareholder value.” Icahn — whose investor group is Mylan’s largest shareholder, according to the Pittsburgh Business Times — added that the company should “seriously consider” terminating the agreement.

Mylan management responded angrily in its own filing with the SEC. According to vice chairman and chief executive officer Robert J. Coury: “Mr. Icahn’s letter is filled with the same kind of rhetoric he has previously communicated. Among other things, we believe Mr. Icahn’s letter attempts to validate his short position in King by continuing to bash King.” Coury added that Mylan’s board and management would not be distracted by Icahn while continuing to thoroughly analyze King Pharmaceuticals and its recent disclosures.

Also up in the air: General Electric Co.’s planned acquisition of InVision Inc., which manufactures bomb-detector equipment for screening luggage.

In July, InVision announced that it had informed the Department of Justice and the Securities and Exchange Commission that the company might have violated the Foreign Corrupt Practices Act. According to Bloomberg, an internal probe at the Newark, California-based company uncovered possible improper payments to international distributors.

GE had agreed in March to acquire InVision for approximately $900 million; that agreement was scheduled to expire on October 31, added Bloomberg. GE has extended the expiration date until December 27 so the Justice Department and the SEC can complete their investigations.

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