Chelsea Therapeutics Board Beats Investor Suit Over Merger

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By Michael Greene

May 20 — Chelsea Therapeutics International Ltd. directors didn't act in bad faith by instructing financial advisers to ignore certain projections when evaluating the company's sale to H. Lundbeck A/S, the Delaware Chancery Court ruled May 20.

Vice Chancellor Sam Glasscock III found it was reasonable for the board not to use “highly speculative projections” to value the company.

The projections predicted that the pharmaceutical company's value would increase in the future if the Food and Drug Administration approved its Northea product—a drug that treats a rare disorder—for other uses, or removed a competing drug from the market.

“The Plaintiffs argue, and it is no doubt conceivable, that reasons exist which might have made it wise for the Board to include the Projections in the Company’s valuation,” Glasscock wrote. “This disagreement with the actions of the Board does not plead a case of bad faith, however.”

‘Rare Bird' Claims

In 2014, Lundbeck purchased Chelsea for $6.44 per share. The deal included contingent value rights (CVRs) worth up to $1.50, for a total possible consideration of $7.94 per share.

The plaintiffs alleged the transaction undervalued the company by between $266 million and $558 million. However, the court was skeptical of this valuation.

“The Defendants argue, and I agree, that if the Projections were a realistic indication that the Company’s value was hundreds of millions of dollar higher than Lundbeck’s offer, another bidder likely would have emerged throughout the 20-month long sales process,” Glasscock wrote.

Glasscock also noted the difficulty of shareholders bringing “catch-all” claims that disinterested, independent directors acted in bad faith.

“Thus conceived, bad faith is similar to the much older fiduciary prohibition of waste, and like waste, is a rara avis,” Glasscock said. “This matter involves the Plaintiffs’ unsuccessful pursuit of that rare bird.”

To contact the reporter on this story: Michael Greene in Washington at

To contact the editor responsible for this story: Yin Wilczek at

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