MEMORANDUM & ORDER
KEVIN THOMAS DUFFY, D.J.
On May 13, 1994, Plaintiff Rebecca Skydell filed the present class action complaint on behalf of herself and all others similarly situated, alleging that Defendants Ares-Serono S.A., and Tucker Anthony Inc., had violated § 14(e) of the Williams Act, 15 U.S.C. § 78n(e), and the rules and regulations promulgated thereunder by the Securities and Exchange Commission. The relief sought by Plaintiff includes a declaratory judgment stating the effect that this is a proper class action; a declaratory judgment holding that Defendants violated § 14(e); injunctive relief against Defendants' use of the allegedly defective offering circular; a damages award to Plaintiff and the class; and an award to Plaintiff of her costs and expenses, including reasonable attorneys', accountants', and experts' fees. On May 25, 1994, a hearing was held on an order to show cause brought by Ares-Serono for an expedited motion to dismiss the complaint pursuant to Fed. R. Civ. P. 12(b)(6) and 9(b), as well as for an expedited briefing schedule for any motion by Plaintiff for an injunction. At the hearing, I determined to hold the motions over until June 6, 1994. In the meantime, on May 27, 1994, Tucker Anthony also moved to dismiss the complaint as applied to it pursuant to Fed. R. Civ. P. 12(b)(6) and 9(b). At the June 6, 1995, hearing, I indicated my intention to take the motions under consideration.
For the following reasons, Tucker Anthony's motion to dismiss is granted. Ares-Serono's motion to dismiss pursuant to Rule 9(b) is denied, while its motion to dismiss pursuant to Rule 12(b)(6) will be treated as a summary judgment motion pursuant to Fed. R. Civ. P. 56.
When ruling upon a motion to dismiss a complaint pursuant to Rule 12(b)(6), all allegations in the complaint should be interpreted in favor of the plaintiff. Scheuer v. Rhodes, 416 U.S. 232, 236, 40 L. Ed. 2d 90, 94 S. Ct. 1683 (1974). The court should dismiss the complaint only if there exists no set of facts which could be construed so as to entitle the plaintiff to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957). Consequently, all factual allegations contained in the present complaint will be presumed true for purposes of this motion.
Ares-Serono is a company organized under the laws of Switzerland, which operates in over twenty countries, and which markets products in over seventy countries. Through one of its wholly-owned subsidiaries, Ares-Serono owns approximately 76% of the shares of InterPharm Laboratories Limited ("InterPharm").
InterPharm was incorporated in Israel in 1978, and its shares are publicly traded on NASDAQ. Plaintiff is an owner of InterPharm common stock. The plaintiff class consists of all persons or entities who owned InterPharm stock as of May 6, 1994 (but not including Defendants or their affiliates), or who acquired their shares prior to the close of the tender offer.
InterPharm is engaged in the research, development, and production of biological and related healthcare products, most notably bulk human fibroblast. The bulk human fibroblast is processed by InterPharm into a pharmaceutical product which for the past decade has been sold under the name "Frone." Derived from human cells, Frone can only be produced in small amounts.
Over the past few years, InterPharm has developed a product called bulk Recombinant Beta Interferon ("Rebif"), which biologically is very similar if not identical to Frone. However, Rebif costs 90%-95% less than Frone to produce. In addition, Rebif has the potential to be produced and sold in larger quantities than Frone. At present, Rebif is undergoing clinical trials as a potential treatment for hepatitis B, hepatitis C, genital warts, and adjuvant therapy in breast and uterine cancer. Also, Ares-Serono has announced plans to secure approval of Rebif as a treatment for multiple sclerosis. Rebif has been granted scientific approval in Italy for the same purposes as Frone, and Ares-Serono currently sells it for approximately the same price it sells Frone in Italy. InterPharm's technology has been protected by patents and other contractual and proprietary measures.
On or about May 6, 1994, in an attempt to gain control of InterPharm by acquiring a total of 90% of that corporation's shares, Ares-Serono distributed to InterPharm's shareholders an offering circular for the purchase of all outstanding shares of InterPharm which it did not already own at a price of $ 22 per share. In this offering circular announcing its tender offer, Ares-Serono allegedly misrepresented the supposed advantages of tendering shares pursuant to the offering circular; the true value of InterPharm, especially considering the future potential for Rebif; and the independence and work of its financial advisor, Tucker Anthony. It is also alleged that Ares-Serono failed to disclose the business possibilities of a new product called IL-6. Likewise, Ares-Serono did not mention in the offering circular that at least since 1990, Ares-Serono had systematically looted InterPharm in order to drive down the price of the shares of the latter company and thereby reduce the costs associated with the anticipated tender offer.
The offering circular also mentions several licenses and other arrangements between InterPharm and Ares-Serono, which are allegedly one-sided, operating predominantly to the benefit of Ares-Serono. According to the complaint, Ares-Serono was able to acquire these arrangements by virtue of its power to appoint all of the members of InterPharm's Board of Directors and the affiliation of 5 of the 12 members of the Board with Ares-Serono. Allegedly, the Board of Directors enabled Ares-Serono to strip InterPharm of its most valuable assets. Plaintiff also claims that the offering circular fails to mention the overwhelming benefit derived by Ares-Serono due to these unfair, one-sided arrangements with InterPharm.
According to Plaintiff, Ares-Serono's dealings with InterPharm caused the price of InterPharm stock to artificially decline to well below market value. Supposedly, the $ 22 per share set forth in the tender offer represents such an artificially depressed price for the minority shares.
Finally, the complaint states that Defendants acted either with full knowledge or recklessly with regard to the allegedly material misstatements and omissions in the offering circular, which members of the class are relying upon in deciding whether or not to sell their shares pursuant to the tender offer.
A. Sufficiency of Claims Under the Williams Act
Section 14(e) of the Williams Act, 15 U.S.C. § 78n(e), is a broad antifraud provision aimed specifically at tender offers for securities. Schreiber v. Burlington Northern, Inc., 472 U.S. 1, 10-11, 86 L. Ed. 2d 1, 105 S. Ct. 2458 (1985). The purpose of the Williams Act is to compel the disclosure of information pertaining to tender offers and offering parties to the public shareholders of target companies, thereby enabling those shareholders to make informed decisions regarding the tender offers for their stock. Buffalo Forge Co. v. Ogden Corp., 717 F.2d 757, 760 (2d Cir.), cert. denied, 464 U.S. 1018, 78 L. Ed. 2d 724, 104 S. Ct. 550 (1983). According to § 14(e), it is
unlawful for any person to make any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading, or to engage in any fraudulent, deceptive, or manipulative acts or practices, in connection with any tender offer or request or invitation for tenders, or any solicitation of security holders in opposition to or in favor of any such offer, request, or invitation.