J&J Ordered to Pay $1 Billion in Auris Health Merger Dispute
A Delaware judge ruled that Johnson & Johnson breached its 2019 merger agreement with Auris Health, ordering a $1 billion payment to shareholders. J&J disagrees and considers an appeal.
In a significant legal development, a Delaware judge has ordered Johnson & Johnson to pay $1 billion in damages to shareholders of Auris Health. The ruling, issued on September 4, 2024, stems from a breach of a 2019 merger agreement between the two companies.
Vice Chancellor Lori Will of the Delaware Court of Chancery determined that Johnson & Johnson failed to uphold its commitments following the acquisition of Auris Health. The healthcare conglomerate, founded in 1886 and known for products like Band-Aid and Tylenol, had initially paid $3.4 billion in cash for the robotics developer. The agreement also included potential additional payments of up to $2.35 billion if certain milestones were met.
The judge's 145-page ruling stated, "J&J's promise to Auris was broken almost immediately after closing." Instead of supporting the acquired iPlatform technology as agreed, Johnson & Johnson allegedly forced it to compete with its own Verb device. This decision effectively turned the iPlatform robot into "a parts shop for Verb," according to the judge.
Johnson & Johnson, which employs over 130,000 people worldwide and has annual revenues exceeding $80 billion, expressed disagreement with the ruling. The company is considering an appeal, stating, "Fundamentally, the court viewed our commercially reasonable contract as imposing a commercially unreasonable obligation." They also emphasized that the ruling does not affect their current robotics program.
The acquisition involved Auris' Monarch robotic platform, designed for diagnosing and treating lung cancer. This aligns with Johnson & Johnson's diverse operations across Consumer Health, Pharmaceutical, and Medical Devices segments. The company has a long history of mergers and acquisitions to expand its product portfolio, with this case highlighting the potential complexities of such deals.
"Fundamentally, the court viewed our commercially reasonable contract as imposing a commercially unreasonable obligation."
Despite the significant financial implications of the ruling, Johnson & Johnson's stock remained relatively stable, trading at $167.46 in midday trading on the day of the announcement. This resilience may be attributed to the company's strong market position and its history of dividend increases for over 50 consecutive years.
The case also sheds light on key investors in Auris Health, including founder Dr. Fred Moll, Lux Capital Management, and Mithril Capital Management, which was the largest shareholder. Interestingly, a unit of Johnson & Johnson had also invested in Auris prior to the acquisition.
This legal dispute adds to the list of challenges Johnson & Johnson has faced over the years, including various product-related lawsuits. However, the company's diverse portfolio, which includes its significant role in developing COVID-19 vaccines, and its commitment to its 1943 credo emphasizing responsibility to stakeholders, may help it navigate this latest setback.
