United States District Court, D. Massachusetts
In re ANALOGIC CORP. SHAREHOLDER LITIGATION
MEMORANDUM AND ORDER ON MOTION TO DISMISS
ALLISON D. BURROUGHS, U.S. DISTRICT JUDGE.
Plaintiff Louis Buttny (“Buttny”) brings this
shareholder class action on behalf of the former shareholders
of Analogic Corporation (“Analogic” or the
“Company”) against the Company and several
members of its board of directors (the “Board, ”
as parties the “Individual Defendants, ” and
together with Analogic,
“Defendants”) for violating federal securities laws
in connection with the sale of the Company to Altaris Capital
Partners, LLC (“Altaris”). Defendants arranged
the sale to Altaris for $84.00 per share and succeeded in
obtaining stockholders' approval. [ECF No. 45
(“Amended Complaint” or “Am. Compl.”)
¶ 12]. The sale price was well below Analogic's
stock closing price of $96.05 just hours before the merger
was announced. [Id.]. Buttny claims that Defendants
violated Section 14(a) of the Securities Exchange Act of 1934
(“Section 14(a)”), 15 U.S.C. § 78n(a), and
Rule 14a-9 promulgated thereunder (“Count I”),
see [Am. Compl. ¶¶ 101-07], and that the
Individual Defendants also violated Section 20(a), 15 U.S.C.
§ 78t(a), (“Count II”) by including
materially false and misleading statements in the proxy that
was disseminated to shareholders to secure their approval of
the sale, [Am. Compl. ¶¶ 108-12]. Presently before
the Court are the Individual Defendants' and
Analogic's respective motions to dismiss. [ECF Nos. 46,
49]. For the reasons discussed below, the motions to dismiss
are GRANTED and the Amended Complaint is dismissed
following facts are drawn from the Amended Complaint, the
well-pleaded allegations of which are taken as true for the
purposes of evaluating the motion to dismiss. See Ruivo
v. Wells Fargo Bank, N.A., 766 F.3d 87, 90 (1st Cir.
2014) (citing A.G. ex rel. Maddox v. Elsevier, Inc.,
732 F.3d 77, 80 (1st Cir. 2013)). Certain details are also
culled from documents attached to the Amended Complaint and
from documents whose authenticity is not disputed by the
parties. See Álvarez-Maurás v. Banco
Popular of P.R., 919 F.3d 617, 622 (1st Cir. 2019)
(citing Watterson v. Page, 987 F.2d 1, 3 (1st Cir.
the sale at issue here, Analogic was a publicly traded
company that designed, manufactured, and sold medical and
security technology components to healthcare and industrial
customers. [Am. Compl. ¶ 40]. It operated three
segments: (i) medical imaging, which included computer
tomography, magnetic resonance imaging, and digital
mammography; (ii) ultrasound; and (iii) security and
detection, which sold medical technology for use in automated
baggage inspections. [Id.].
6, 2017, the company reported revenue declines in its medical
imaging and ultrasound segments for its third quarter, which
were at least partially offset by revenue growth in its
comparatively smaller security and detection segment.
[Id. ¶ 41]. Management assured stockholders
that these declines were temporary and that the Company's
Board-approved financial operating plan (the “Operating
Plan”) suggested Analogic would experience a turnaround
in 2018 and would be able to return long-term value to its
activist shareholder, Voce Capital Management, LLC
(“Voce”), used the disappointing revenue numbers
as an opportunity to begin pushing for a near-term sale of
the Company. [Id. ¶¶ 4, 42]. On June 26,
2017, Analogic CEO Fred Parks agreed to meet with Voce, and
Analogic subsequently terminated its CFO and retained
Citigroup Global Markets, Inc. (“Citi”) as its
financial advisor. [Id. ¶¶ 43-45]. On
August 30, 2017, Voce announced its intention to nominate
four candidates to replace Board members at Analogic's
2017 shareholder meeting. [Id. ¶ 47]. In
September 2017, Analogic held discussions with Voce and
announced that it had initiated a process for the sale of the
entire Company to maximize shareholder value on an
accelerated timeline. [Id. ¶¶ 48-52]. On
October 12, 2017, Analogic and Voce entered a cooperation
agreement under which Analogic agreed to add Voce's
nominee Joseph Whitters as a new Board member and to form a
strategic alternatives committee consisting of Defendants
Whitters, Bernard Bailey, and Jeffrey Black (the
“Committee”) to explore a sale. [Id.
¶ 53]. In exchange, Voce agreed to withdraw its notice
of intent to nominate new board candidates and agreed not to
disparage the Board or Analogic's management.
[Id. ¶ 54].
to the proxy, during the sale process, Analogic was in
contact with 75 potential strategic and financial buyers, 38
of whom entered into non-disclosure agreements and received
confidential information concerning the Company. [ECF No.
48-1 at 44]. From November 15 to November 17, 2017, Analogic
received several proposals from entities interested in
acquiring a part or all of the Company, [Am. Compl. ¶
55], including Altaris, who submitted a preliminary,
non-binding indication of interest in acquiring the Company
for a price of $80.00 per share. [ECF No. 48-1 at 45]. During
December 2018, Analogic evaluated the bids and discussed the
need to perform reverse due diligence on the companies that
had proposed purchasing Analogic for a combination of stock
and cash. [Id. at 47].
January 2018, Analogic began experiencing the turnaround that
management had predicted. [Am. Compl. ¶ 57]. Management
informed the Board that the Company's financial
projections needed to be revised upward to account for the
improved performance and outlook. [Id. ¶ 58].
On January 15, 2018, the Committee approved a revision to the
Operating Plan to reflect the improved performance and the
anticipated effects of tax reform legislation that had been
passed in December 2017 (the “Revised Operating
Plan”). [Id. ¶ 59]. The Revised Operating
Plan reflected expectations of compound annual growth of 10
percent in the ultrasound segment as compared to the 6
percent projected by the original Operating Plan.
[Id.]. On January 17, 2018, the Revised Operating
Plan was provided to companies that the Board considered
viable bidders in the sales process, including Altaris.
[Id. ¶ 60; ECF No. 48-1 at 47.] Between January
29 and 31, 2018, three companies submitted a second round of
bids to acquire Analogic for between $80.00 and $85.00 per
share. [Am. Compl. ¶ 61]. Altaris was the sole bidder to
submit an all-cash offer and proposed acquiring Analogic for
$82.50 per share. See [ECF No. 48-1 at 48].
February 1, 2018, management informed the Board that Analogic
would need to revise its financial projections upward once
again. [Am. Compl. ¶ 62]. On February 8, 2018,
management prepared an updated financial forecast for 2018
that reflected increasing confidence in the ultrasound
segment and expected revenue growth in the security and
detection segment. [Id. ¶ 63]. The updated
projections were provided to the Board, Citi, and the three
remaining viable bidders. [Id. ¶ 64].
incorporated the updated projections into an updated Revised
Operating Plan and extrapolated to provide projections
through fiscal year 2022. [Id. ¶ 65]. The
five-year extrapolations assumed a decline in revenue growth
to 3 percent in 2021 and 2022 from the 11 percent projected
in 2020 (the “Case 1 Projections”). [Id.
¶ 65]. Citi performed a discounted cash flow
(“DCF”) analysis using the Case 1 Projections and
found an implied equity value per share of $84.40 to $108.20.
February 26 and 27, 2018, the three remaining companies in
the bidding process submitted a third round of bids.
[Id. ¶ 67]. The bids were valued at $80.00,
$82.50, and $85.00 per share, with Altaris bidding $82.50 per
share in cash. [Id.; ECF No. 48-1 at
The $85.00 bid was composed of both stock and cash
components, and its valuation was therefore subject to
fluctuation based on the value of the acquiring company's
stock. [ECF No. 48-1 at 50]. According to the proxy, the
value of the purported $85.00 bid had declined to
approximately $80.60 based on the acquiring company's
closing price as of the date of the bid letter.
February 28, 2018, the Board held a meeting where Citi
presented its DCF analysis. [Am. Compl. ¶ 68]. In
addition to the analysis that Citi had prepared based on the
Case 1 Projections, Citi presented a DCF analysis using
projections that were compiled by removing the value expected
by management from a channel development initiative for
Analogic's medical computer tomography (the “CT
Initiative”) (the “Case 2A Projections”).
[Id. ¶ 69]. At that time, two bidders had
questioned the value of the Company's CT Initiative
during meetings with management that occurred in conjunction
with the bidding process. [ECF No. 48-1 at 50-51]. The DCF
analysis based on the Case 2A Projections yielded an implied
value of $81.25 to $103.65 per share. [Am. Compl. ¶ 69].
being asked to consider increasing its bid, Altaris submitted
a revised proposal to acquire Analogic for $84.00 in cash on
March 4, 2018. [Id. ¶ 70; ECF No. 48-1 at 51].
At a March 8, 2018 meeting, the Board determined that
Altaris's offer was the only viable bid for Analogic.
[Am. Compl. ¶ 72]. That bid remained below the $84.40
low end of the value range implied by Citi's Case 1
Projections DCF analysis and on the low end of the range
implied by the Case 2A Projections. Additionally, the bid was
well below the market price for Analogic's stock which,
spurred by strong quarterly financial results, was trading
above $94.00. [Id. ¶ 73]. The Board therefore
asked Citi for examples of previous transactions where a
company was acquired at a price below the price at which its
stock was trading and also requested that its counsel
consider the implications for board members' fiduciary
duties under the circumstances. [Id. ¶ 74].
weeks later, on March 22, 2018, Citi presented a revised DCF
analysis to the Board and Analogic's senior management
that used a more pessimistic set of projections and applied a
25 percent reduction in annual revenue growth and in non-GAAP
EBITDA margin expansion (the “Case 2B
Projections”). [Id. ¶ 75]. This DCF
analysis implied a value of $74.40 to $94.15, making the
Altaris offer appear relatively attractive. [Id.
¶ 76]. The Committee responded by instructing Citi to
use the Case 2B Projections for the purpose of preparing an
opinion on the financial fairness of the merger.
[Id. ¶ 77].
March 27, 2018, the bidder that had previously submitted an
offer to acquire Analogic for $85.00 per share based on an
above-market valuation of that bidder's stock, submitted
a new offer again at $85.00 per share, consisting of 30
percent cash and 70 percent stock based on the spot price of
the bidder's stock. [Id. ¶ 78]. The Board
determined, however, that the bidder was not a strategic fit
and that it preferred the proposed merger with Altaris at
$84.00 per share in cash. [Id. ¶¶ 79-80].
On April 10, 2018, Citi delivered an opinion that $84.00 per
share was fair from a financial point of view and the Board
unanimously voted to approve the merger. [Id. ¶
81]. On that day, Analogic's stock closed at $96.05 per
share. [Id. ¶ 82].
16, 2018, Analogic filed and disseminated the proxy
soliciting stockholders' approval of the merger.
[Id. ¶ 82]. The proxy was supplemented on June
12, 2018 in advance of a June 22, 2018 vote. [Id.
¶¶ 83, 99]. The proxy recommended that shareholders
vote in favor of the merger and stated that the merger was
“in the best interests of the Company and its
shareholders” and that $84.00 per share was “more
favorable to the Company shareholders” than all other
alternatives, including remaining as a standalone company.
[Id. ¶ 84]. The Proxy stated that this opinion
was based on several factors, including:
The Company's Past Financial and Operating
Performance. Since fiscal 2013, the Company has
experienced a period of inconsistent performance,
characterized by flat to declining revenues and earnings.
Over the period from fiscal 2013 through fiscal 2017, the
Company's revenues have declined at a compound annual
rate of approximately -3%. The Board also considered the past
performance of representative peer companies and the history
of third-party analysts making significant negative
adjustments to the Company's outlook in each year over
. . .
The Board considered that these factors raised significant
concerns regarding the achievability of the Company's
financial operating plan, noting in particular that, when
compared to the Company's four previous operating plans,
the Company's actual performance has been significantly
less favorable than the performance projected. This raised
significant doubts that the approximately -3% compound annual
rate of revenue decline over the past four years could be
reversed into the 7.8%, 5.3% and 4.0% compound annual growth
rate of the revenues reflected in Case 1, Case 2A and Case
2B, respectively, over the projected periods of fiscal 2018
to 2022. Even if achieved, the revenues reflected in the
first two years of each of Case 1, Case 2A and Case 2B would
be at the lowest levels recorded by the Company since 2014,
in the case of Case 1, and since 2011, in the case of Case 2A
and Case 2B.
[Id. ¶¶ 85-86]. The proxy also stated that
Defendants instructed Citi, for the purpose of their
financial analysis, to assume the Case 2B Projections were
the best projections for valuing the Company's stock in
comparison. [Id. ¶ 88]. Specifically, the proxy
indicated that the projections reflected “the best
currently available estimates and judgments of the management
of Analogic as to the future financial performance of
Analogic” and that “Case 2B represented the most
likely standalone financial forecast for the Company's
business.” [Id.]. The proxy advised
shareholders that the Committee had concluded that the Case
2B Projections were the best because:
The Committee expressed its view that neither Case 1 nor Case
2A adequately reflected the risks associated with the
achievability of management's operating plan generally,
including long-term macroeconomic trends in the maturing
medical imaging market, increasing global competition from
larger and better capitalized competitors, increasing
industry consolidation and the Company's ability to
develop new market channels for its products, as well as its
view that certain bidders appeared to share this view and
noted that the sensitivity analysis illustrated that all
three proposals reflected appropriate valuations on a risk
In assessing the validity of these risk adjustments [i.e.,
the 25% haircut from the Case 2A projections to the Case 2B
projections], the Committee considered the Company's past
performance, the performance of representative peer companies
and the history of third-party analysts' adjustments to
the Company's outlook. The Committee concluded that the
risk adjustments in Case 2B were appropriate and consistent
with the Committee's expectations for the business and
instructed Citi to consider Case 2B as the best
representation of the Company's future prospects.
[Id. ¶ 89].
the Board expressed the view that the Case 2B Projections
represented the best standalone financial forecast for the
Company's business, the 215-page proxy disclosed all
three financial projections-Case 1, Case 2A, and Case 2B-and
included an extensive description of the bidding process.
See [ECF No. 48-1 at 64-70]. The proxy disclosed the
timing of the development of the Case 2B Projections, making
it clear that the DCF analysis based upon those projections
was completed in late March, well after Altaris submitted its
$84.00 per share offer. [Id. at 52-54]. The proxy
also contained cautionary statements. For example, it
explained that “[r]eaders should not place undue
reliance on these forward looking statements, ” and
“[t]he estimates contained in Citi's analyses and
the valuation ranges resulting from any ...