The board of an Ohio company said yesterday that it is withdrawing its recommendation that shareholders approve a merger that would double the size of the pharmacy prescription business of Baltimore-based NeighborCare.
NeighborCare's parent, Genesis Health Ventures Inc., said it has an agreement with executives of Cleveland-based NCS Health Care Inc. who hold a majority of the voting power and that it expects to complete the acquisition of NCS.
NCS Chairman John H. Outcalt and President and Chief Executive Officer Kevin B. Shaw hold millions of NCS shares that carry 10 votes each.
The action of the NCS board "doesn't affect the agreement," said Lisa J. Salamon, a Genesis spokeswoman. "We have a legally binding agreement with the majority shareholders."
Omnicare Inc., a Kentucky company that made a higher bid, and some shareholders are challenging the deal in court.
Andy Brimmer, an Omnicare spokesman, said the deal was based on "illegal voting agreements." He said more than 70 percent of other NCS shareholders agreed to sell to Omnicare.
Genesis announced the deal, valued at $340 million, in July. It would combine NCS, the nation's fourth-largest institutional pharmacy company with 203,000 nursing home patients, with the third-largest, NeighborCare, which has 248,000 and retail pharmacies in four states, including Maryland.
Under the deal as announced, Genesis would assume NCS debt and offer Genesis stock worth about $1.60 a share to NCS shareholders. Genesis' share price has dropped since, making the offer worth about $1.30 a share. Soon after the deal was announced, Omnicare offered $3.50 a share in cash.
In legal filings, NCS argued that it was in default on its debt in July and took a firm offer from Genesis when no offer was on the table from Omnicare. In its legal filings, Omnicare said it had offered $3 a share before the Genesis deal was signed, but that NCS never responded.
Yesterday, NCS issued a statement saying that its board had backed off support of the Genesis deal. NCS cannot cancel the deal and is required to submit it for a stockholder vote, according to the statement.
"By virtue of voting agreements entered into in connection with the Genesis transaction, NCS believes that Genesis has sufficient voting power to approve the Genesis merger," the statement said. "However, both the Genesis merger agreement and the voting agreements are the subject of pending litigation in the Delaware courts."