A shareholder lawsuit filed in federal court seeks to halt Novartis AG's acquisition of Regulus Therapeutics Inc., alleging the up to $1.7 billion deal unfairly benefits company insiders at the expense of public investors while violating securities disclosure requirements.
The complaint, filed Thursday in the US District Court for the Southern District of California by plaintiff Arsh Saini, challenges the transaction structure and claims Regulus failed to provide shareholders with essential information needed to evaluate the merger's fairness.
Acquisition Structure and Kidney Disease Focus
Under the agreement announced April 30, Novartis will acquire Regulus for $7 per share in cash, totaling approximately $800 million. The deal's headline value of $1.7 billion includes contingent value rights that would pay shareholders an additional $7 per share if Regulus' lead product candidate farabursen receives regulatory approval for treating the most common inherited kidney disease.
The acquisition is expected to close in the second half of 2025, with Novartis having commenced a tender offer this week as part of the transaction process.
Alleged Securities Violations
The lawsuit contends that Regulus and its board violated securities laws by omitting critical information from the recommendation statement filed with the Securities and Exchange Commission on May 27. According to the complaint, the company failed to disclose key details about the sales process, potential conflicts of interest involving corporate executives' financial interests, and financial projections and underlying data provided to Regulus' financial advisor Evercore Group LLC.
"Without this data, investors can't properly evaluate the company's worth or the accuracy of its financial advisor's analyses," the complaint states. Saini argues that shareholders are entitled to this information to obtain "a complete and accurate picture of the sales process and its fairness" and make informed voting decisions regarding the merger.
Executive Compensation Concerns
The lawsuit highlights that company insiders hold substantial illiquid portions of various share types and options, some of which will be converted under merger terms unavailable to public investors. The complaint specifically notes that certain executives—including the CEO, president, and chief financial officer—have "golden parachute" severance packages worth tens of millions of dollars if terminated under specific circumstances.
Missing Disclosure Elements
According to the complaint, the recommendation statement failed to address potential confidentiality agreements with Novartis or other interested parties and did not fully clarify communications during negotiations regarding post-merger employment arrangements.
The plaintiff, represented by Brodsky Smith, seeks court intervention to either rescind the deal if completed or award rescissory damages. Additionally, Saini requests that the court order Regulus to correct its recommendation statement for alleged violations of the Securities and Exchange Act of 1934.
Regulus has not responded to requests for comment regarding the lawsuit. Latham & Watkins LLP serves as legal counsel to Regulus in the transaction.
