Sphinx Pharmaceuticals Corp. (NASDAQ:SPHX) and Eli Lilly and Co.(NYSE:LLY) have signed a definitive agreement for the acquisition ofSphinx by Lilly. On March 8, the two signed a letter of intent.However, a group of Sphinx shareholders has since filed a class actionsuit to torpedo the arrangement.The dissident shareholders claim in a class action complaint filed inDelaware, where Sphinx is registered, that Sphinx's board of directorsbreached their fiduciary duty to shareholders by going ahead with themerger. Lilly is also a defendant in the case.The shareholders, who purchased Sphinx stock in its initial publicoffering at a price of $15 a share, claim, among other things, that theywill be prevented from obtaining a fair price for their shares of Sphinxstock. Lilly is buying the stock for $6 a share.Bennett Love, Sphinx's director of corporate planning, denied theaccusations. "We feel like the directors have acted according to theirfiduciary responsibilities and in the best interests of the shareholders.We believe the acquisition is in the best interests of the shareholders atthis time."We plan to file the proxy issue with the Securities and ExchangeCommission (SEC) in the middle of May. Once it has been reviewedby the SEC, we will put the proxy issue out to shareholders.Shareholders can vote on it at that time at a special meeting." Thecompany says it will defend the lawsuits vigorously.Under the agreement, Sphinx would be a wholly-owned subsidiary ofLilly.In their complaint, the shareholders claimed that Lilly, which alreadyowns 5.4 percent of Sphinx's common stock, "wields control overSphinx." The complaint states that the defendants plan "to freeze outthe public shareholders of Sphinx at a price that does not reflect thecompany's true value . . . Because of their positions of control overSphinx, defendants have a lock on the company which will deter anythird party from bidding for it. Accordingly, plaintiffs and the class willnot be able to get a fair and adequate price for their Sphinx securities."Lilly closed at $51.60, up $2.38, and Sphinx ended the day at $5.60, up63 cents. n
-- Philippa Maister
(c) 1997 American Health Consultants. All rights reserved.