A federal class action lawsuit that alleged CVS Health Corp. misled shareholders about struggles within its long-term care pharmacy business after its acquisition of Omnicare has been dismissed. The complaint also alleged improprieties pertaining to CVS’s merger with Aetna Inc.
The U.S. District Court of Rhode Island issued the ruling in favor of Omnicare’s parent company late last week. The decision was first reported by Bloomberg Law.
A request for comment from CVS Health by McKnight’s Long-Term Care News was not answered by production deadline.
Investors accused the company of actively putting out false and misleading information in its financial announcements between 2015 and 2018, the period between the Omnicare acquisition and Aetna merger. Plaintiffs argued CVS was “motivated by the desire to hide its struggling LTC business to ensure that the Aetna purchase would [succeed] and on terms preferable” to the company.
“They allege that although CVS acquired Omnicare with the idea of taking over what was at the time a healthy distribution network of pharmaceuticals in the LTC market, mismanagement ultimately spurred substantial client losses. In addition to false and misleading reports designed to hide the problem from investors, the Plaintiffs point to CVS’s decision to ‘fold’ the LTC business into its front-store retail operations in its financial reports to make it impossible for investors to see the drain,” court documents detailed.
District Judge Mary S. McElroy in her ruling noted that Omnicare was “by virtue” a leader in the LTC industry at the time of the acquisition and the statement was more of a declaration of “optimism, or perhaps wishful thinking, than anything an investor would rely on.”
In denying the plaintiff’s argument, McElroy wrote that “as a characterization, these first set of statements may have been overly optimistic. But absent assertions supported by fact that CVS Health at that time had only a small fraction of the market, or was barely a ‘player,’ the labeling of CVS as a “leader” can hardly be termed objectively false.
“And, indeed, one of the failings of the amended complaint is that it does not draw a clear timeline of customer losses; thus, while there is an ample demonstration of customer loss, there is no comparative basis for concluding that the customer base had fallen so far behind what it was pre-acquisition as to make the ‘leadership’ label cross from exaggeration into falsehood,” she added.
