Altimeo Asset Management v. WuXi PharmaTech Inc.

Background

Altimeo Asset Management was the lead plaintiff in a putative securities class action against WuXi PharmaTech (Cayman) Inc., individual corporate officers, and companies that participated as merger investors. Altimeo alleged that the defendants concealed plans to spin off WuXi subsidiaries and relist them on foreign exchanges after a go-private merger, thereby depressing the price paid to WuXi security holders.

WuXi’s American depositary shares traded on the New York Stock Exchange until the merger closed on December 10, 2015. The buyer group offered $46 in cash for each American depositary share. WuXi’s proxy materials described the merger and stated that the buyer group might consider relisting the company’s equity on Chinese or Hong Kong stock exchanges, which might have higher valuations.

After the merger, WuXi subsidiaries completed or began preparing for public offerings and other financing transactions. Altimeo relied on those later events, news articles, and statements attributed to company personnel to allege that the defendants had already planned the spin-offs and relistings before the merger. Altimeo identified four categories of allegedly misleading statements: statements about plans not to relist, statements that there were no viable alternatives to the merger, statements that the merger was fair, and statements about the reasons for taking WuXi private.

Claims and Legal Standard

Altimeo asserted claims under Section 10(b) of the Securities Exchange Act and Rule 10b-5, which prohibit certain material misrepresentations and omissions in connection with securities transactions. It also asserted an insider-trading claim under Section 20A and control-person liability under Section 20 of the Exchange Act.

The defendants moved to dismiss under the pleading standard requiring a complaint to contain enough factual detail to make liability plausible. For the Section 10(b) claim, the Private Securities Litigation Reform Act also required Altimeo to identify each misleading statement, explain why it was misleading, and plead particularized facts supporting a strong inference that the defendants acted with the required state of mind.

Court’s Analysis

The court held that Altimeo did not plausibly allege a material misrepresentation or omission. The proxy materials disclosed both the possibility of relisting and the possibility that relisting could produce a higher valuation. The court concluded that the allegations showed, at most, that relisting was a possibility—not that the defendants had adopted a concrete relisting plan before the merger.

The court considered the news articles cited by Altimeo. It found that most involved post-merger speculation or comments made long after the merger. The two articles containing statements from around the merger described an intention or possibility of returning to Chinese markets, but did not establish a concrete plan. A later statement describing a long-term strategy to spin off three entities did not mention relisting and did not establish what role that speaker had in the merger.

The court also rejected the other theories of misrepresentation. WuXi’s statement that it would continue operating as a private company was not inconsistent with later listing subsidiaries in which WuXi retained an ownership interest. Statements about the benefits of private ownership did not amount to a promise never to list a subsidiary on a foreign exchange. The alleged failure to describe a possible spin-off-and-relisting alternative likewise could not make the statements about available alternatives misleading without a concrete plan.

As to fairness, the court explained that Section 10(b) does not provide a claim merely because a transaction was allegedly unfair; the alleged unfairness must result from a failure to disclose required information. Because WuXi disclosed the possibility of relisting and its possible valuation effect, the court held that Altimeo was not entitled to projections for every possible subsidiary spin-off or valuation for every possible future market.

The Section 20A insider-trading claim failed because it required an underlying Exchange Act violation and material nonpublic information, neither of which Altimeo plausibly alleged. The Section 20 control-person claim also failed because it required a primary violation by the controlled person.

Disposition

Altimeo declined the opportunity provided by the court’s individual rules to amend its complaint after the motions to dismiss. The court therefore held that Altimeo waived any right to amend to cure defects identified by the motions and independently found that amendment would be futile.

Judge Alison J. Nathan granted the defendants’ motions to dismiss, denied leave to amend, and dismissed all claims with prejudice. The court directed the Clerk of Court to close the case.