Cain v. Hassan, et al. Settled — As I Reported Over Four Months Ago

Back on October 19, 2011, I reported (exclusively, worldwide near as I can tell) that Cain v. [Ex-CEO Fred] Hassan, et al. would settle, based on federal (New Jersey) District Court pleadings and papers filed as a matter of public record that day.

Well, it took a while, but the AP is now covering it.

Why? Because the settlement is final (Judge Cavanaugh’s non-precedential opinion PDF — 12 pages, made public yesterday).

Here’s some of my New Years’ Bowl Game Day 2012 background on what is still to come:

. . . .Said another way, the insurers expect that there is only an around 5 percent chance that the $7.5 billion would be awarded by a jury. The expert, in his law review article, quotes an insurer (anonymously, for obvious reasons), thus — particularly apt, as it refers to another pharma securities fraud case:

. . . .Pfizer has — I’m talking off the top of my head — 3 billion shares outstanding, and the stock went down 10 bucks. That’s $30 billion of damages. 5% of that is $1.5 billion. Settlement.

And you go to a judge and say, “The damages are $30 billion. We are proposing a settlement that is 5%. How can you say that is unreasonable?” And we say, “It’s unreasonable because it doesn’t reflect the liability,” and they say, “Sure it does. It’s 5% of the total, but it could happen. So it is 5-to-95 chance to win. Yes, it’s a perfect discount. . . .”

And so sometimes the numbers will in and of themselves take over, and I have that on a number of the pharmaceutical companies or large, large, jumbo-cap companies. I have it with General Motors, General Electric. The stock ticks down $2, which isn’t enormous. It’s not a free fall[. It’s] based on some news that might be innocuous, and it’s enough because that creates a damage pool that is into the billions which immediately gets the plaintiffs’ lawyers out because there [are] damages, and the case has value irrespective of the merits. . . .

If you look at the numbers, the settlement compared to the damages, you are talking anywhere from 2% to 6% of [plaintiffs’-style damages]. . . .

So, applying this to the ENHANCE facts, at legacy Schering-Plough/New Merck, we multiply $7.5 billion times 2 percent to get $150 million. If it is 6 percent, we’d yield a settlement value of $450 million. So something between $200 million, and $500 million, is the likely rough value of the cases still pending, for damages — according to the parties’ own jointly selected settlement defense expert. And that’s before approaching the involved lead underwriters, in the Schering-Plough convertible securities offerings, back in August of 2007 (some $4 billion worth, in the aggregate).

Are you paying attention, here, Fred Hassan? This is what poor management and lax oversight costs a company, and its owners. . . .

There are still several ENHANCE era would be federal class action securities lawsuits pending — though most are now either before a mediator, or a team of mediators, with views (on all sides) toward finding an agreed settlement posture.

All of those are far more likely to involve money damages, rather than corporate governance reforms, in my estimation.

In that regard, Merck’s From 10-K recently disclosed (for the first time, I think — in Footnote 12, on page 121) that it carries insurance of around $250 million for such claims. Even so, Merck says its reserves are adequate for defense costs only — not (necessarily) potential settlement payout amounts. Interesting.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s