Bloomberg News

SEC Sues Glaxo Unit Over Share Buybacks Before Acquisition

December 15, 2011

(Adds SEC comment on fines in third paragraph, Glaxo comment in seventh.)

Dec. 12 (Bloomberg) -- Stiefel Laboratories Inc. and its former chairman were sued by U.S. regulators for buying back stock from employees without disclosing key information, including its acquisition talks with GlaxoSmithKline Plc.

Stiefel Labs, based in Coral Gables, Florida, and former chairman Charles Stiefel defrauded shareholders out of more than $110 million by using low valuations for stock buybacks from November 2006 to April 2009, the Securities and Exchange Commission said in a complaint filed at U.S. District Court in Florida today.

Stiefel Labs announced in April 2009 that London-based GlaxoSmithKline would acquire the firm at a price more than 300 percent higher than the per-share price used in buybacks, the SEC said. The SEC is seeking disgorgement, or repayment, of ill- gotten gains and unspecified fines, which could potentially amount to the value of the gains, said Eric Bustillo, head of the SEC’s regional office in Miami.

“Private companies and their officers must understand that they are not immune from the federal securities laws, which protect all shareholders regardless of whether they bought stock in the open market or earned shares through a company’s stock plan,” Bustillo said in a statement.

A phone call to Holly Skolnick and David Coulson, Stiefel’s attorneys at Greenberg Traurig LLP in Miami, wasn’t immediately returned.

Share Purchases

Stiefel Labs and Charles Stiefel will have about 20 days to reply to the complaint upon receipt, Bustillo said.

"Stiefel denies that it or Charlie Stiefel acted improperly or did anything to violate the securities laws," Glaxo said in an e-mailed statement. "Stiefel intends to vigorously defend itself against the SEC’s complaint."

Stiefel Labs, which was one of the world’s largest private manufacturers of dermatology products at the time, purchased more than 750 shares of company stock from shareholders between November 2006 and April 2007 at a price of $13,012 per share, the SEC said. At that time, Charles Stiefel knew that five private equity firms had submitted offers to buy preferred stock based on valuations that were 50 to 200 percent higher than the valuation used for the buybacks, according to the complaint.

Between late July 2007 and June 2008, Stiefel Labs bought back more shares at undervalued prices after Charles Stiefel knew that a prominent private equity firm had bought preferred shares based on a valuation that was more than 300 percent higher than that used for the buybacks, the SEC said.

Charles Stiefel also led shareholders to believe the company would remain family-owned even though the firm was in talks to be acquired by GlaxoSmithKline, according to the complaint. The company purchased back more than 800 shares between December 2008 and April 2009.

GlaxoSmithKline bought Stiefel Labs for $2.9 billion, and agreed to pay another $300 million depending on the company’s performance. Blackstone Group LP advised Stiefel Labs on the sale, while Lazard Ltd. advised GlaxoSmithKline. Blackstone, based in New York, agreed to make a $500 million minority investment in Stiefel in August 2007.

--With assistance from Makiko Kitamura in London. Editors: Kristen Hallam, Lawrence Roberts

To contact the reporter on this story: Joshua Gallu in Washington at jgallu@bloomberg.net

To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net


China's Killer Profits
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus