Amerigroup Corp (AGP) shareholders are suing its board and Goldman Sachs Group (GS) because they say that the defendants’ conflicts of interest got in the way of other bids being considered before they agreed to let WellPoint Inc. (WLP) buy the managed care company for $4.9B.
The shareholders’ securities lawsuit was filed by the Louisiana Municipal Police Employees Retirement System and the City of Monroe Employees Retirement System in Michigan in the Delaware Court of Chancery, which has seen an increase in cases over whether certain deals shouldn’t go through because of questions surrounding whether the advisors involved had conflicts of interest.
According to the plaintiffs, a complex derivative transaction with Amerigroup created a financial incentive for Goldman to execute a deal quickly even if was not in the best interests of shareholders. The financial firm is accused of pushing for the WellPoint purchase instead of one with another company that was willing to pay more albeit bringing more regulatory issues with it that would take time to resolve.
The WellPoint deal, contend the pension funds, allowed for the possibility that Goldman would get a windfall profit on the derivative deal that would obligate Amerigroup to pay the financial firm $233.7M if an agreement on the sale was reached by August 13, as well as another “substantial” financial figure if by October 22 it was closed.
Now, Amerigroup’s shareholders want to block the sale of the company until the board improves the deal’s terms. They believe that the process that led to the deal, which could nearly double WellPoint’s Medicaid business, prevented the highest price possible from being considered and was “flawed.” They said that the derivative transaction was a conflict for Goldman because Amerigroup would be it much more than the $18.7M it was supposed to get from the WellPoint deal.
Although not defendants in this shareholder complaint, the firm’s management and Barclays (BCS) also had conflicts when arranging the company’s sale, claim the plaintiffs. They said that one could argue that WellPoint bought Amerigroup executives’ loyalty by indicating that they could stay in their positions after the acquisition and that following the merger they would be given $12M worth of WellPoint stock.
Under President Barack Obama’s health-care law, up to 17 million patients would be added under Medicaid. The sale would make WellPoint the largest provider of Medicaid coverage for the impoverished. UnitedHealth Group Inc. (UNH) would be the second largest. More healthcare company acquisitions are expected as competition for the growing Medicaid market continues.
Goldman ‘conflicted’ in Amerigroup/WellPoint deal-lawsuit, Reuters, August 17, 2012
WellPoint dragged into Goldman Sachs suit, IBJ.com, August 20, 2012
More Blog Posts:
Ex-Goldman Sachs Director Rajat Gupta Pleads Not Guilty to Insider Trading Charges, Stockbroker Fraud Blog, October 20, 2011
Goldman Sachs Ordered by FINRA to Pay $650K Fine For Not Disclosing that Broker Responsible for CDO ABACUS 2007-ACI Was Target of SEC Investigation, Stockbroker Fraud, November 12, 2010
Unfortunately, every year investors lose money because of the negligence or wrongdoing committed by financial firms and their representatives. This is unacceptable. At Shepherd Smith Edwards and Kantas, LTD, LLP, our institutional investment fraud attorneys make it our business to help our clients recoup their losses.