By James Pilcher
The Cincinnati Enquirer

Covington-based Omnicare Inc.'s long and convoluted effort to buy one of its competitors was revived this week by the Delaware Supreme Court, which stopped a merger between Omnicare's target and a third competitor.

But corporate law experts say the court's decision could mean a lot more than just a shake-up in the $7.2 billion pharmaceutical management industry.

It could mean a major shift in law for most of corporate America and how mergers are conducted in the future, they said.

"This is not just a Cincinnati-area case - the whole world is watching this," Lawrence Hamermesh, a law professor at Widener University's law school in Wilmington, Del., said Wednesday. "Until we have a fully formed opinion from the court, deciphering what this means is kind of like reading the entrails. But there is no question these are novel issues at a time when the spotlight and scrutiny is on (board) director behavior conduct."

The Delaware court late Tuesday ruled 3-2 to stop a merger between NCS HealthCare Inc. of Beachwood, Ohio, and Genesis Health Ventures of Kennett Square, Pa.

The decision, which said the NCS board did not fulfill its responsibility to shareholders, reverses a previous decision by the Delaware Chancery Court, which hears many cases involving national corporate law.

In fact, more than half of the companies listed on the New York Stock Exchange and more than half of the Fortune 500 are Delaware corporations. That's primarily because Delaware has some of the most comprehensive corporate law in the nation, with experts saying those laws are favorable to companies.

"This is controversial even within the (Delaware) Supreme Court, and this is of intense interest for the entire corporate bar," said Mr. Hamermesh, an expert on Delaware corporate law, who has been watching the Omnicare case.

NCS and Genesis, both top-five companies in the market for providing drug services to nursing homes and assisted-living centers, had agreed to merge in late July, with Genesis to pay $38 million in stock for the financially struggling NCS.

But market leader Omnicare, which reported a $74.2 million profit last year, said at the time that it had offered $71 million for NCS. The company later raised its offer to $83 million and sued NCS's board. Both companies' offers also include assuming NCS's $310 million debt.

Omnicare said top NCS corporate officers, who control 65 percent of the stock because of a preferred stock voting arrangement, were not looking out for the best interests of all the shareholders. NCS counter sued, saying Omnicare's offer contained false information.

Court documents show that NCS officials also resented the fact that Omnicare tried to buy NCS last summer but insisted that NCS go through bankruptcy to finish that deal, an offer that eventually reached $270 million, including debt assumption.

But what happens now is unclear.

While Tuesday's court ruling did put a halt to the NCS-Genesis merger, it gave no further guidance.

The ruling said the NCS board had been "preclusive and coercive" in its previous actions, and that by presenting the Genesis deal, it was putting its own interests ahead of those of other shareholders.

However, the court did not say what NCS should do next or whether it should present the Omnicare offer instead.

NCS officials had scheduled a shareholder meeting for today to vote on the Genesis deal, but the NCS board withdrew its recommendation for the Genesis deal earlier this fall. NCS officials did not return phone calls Wednesday.

Whether NCS shareholders will be allowed to vote on the Omnicare offer, which has been extended seven times, also is unknown. The latest extension of the Omnicare offer expires at midnight tonight, and it was unclear whether Omnicare would extend it again.

All Omnicare spokesman Andy Brimmer would say was that the company was "gratified with the court's decision and still has its tender offer on the table."

Genesis spokeswoman Lisa Salamon Tuesday said the NCS-Genesis deal was "legal and binding, and we feel we should be able to consummate the deal." Wednesday, Genesis said only that it was evaluating the decision and considering its options.

In a research note Wednesday, Steven Halper, analyst with the Wall Street firm Thomas Weisel Partners LLC, said "the likelihood of (Omnicare) successfully acquiring NCS has improved drastically." He noted that as a result of the ruling, holders of NCS common stock now have more clout than company officers, who hold the preferred stock.

Other analysts say that if NCS and Genesis were allowed to merge, Genesis would then become the second-largest company in the industry, with almost 25 percent of the market. But if Omnicare were to win, it would solidify its position as the biggest player with almost 1 million nursing home/assisted-living beds nationwide - the total market is estimated to be about 2.7 million such beds. Omnicare's stock price closed at $24.22 Wednesday, up $1.70.

And since NCS is probably one of the last large companies to allow itself to be bought in an already consolidated industry, those analysts say they are not surprised that the fight has become so bitter.

"It's all about economies of scale, and consolidation is a major way to reduce costs," said Phillip Seligman, a stock analyst who covers the industry for the Wall Street firm Standard & Poor's. "More than that, this case raises interesting questions about how much control individual shareholders have. And that's an issue that's across the board, not just in this industry."

E-mail jpilcher@enquirer.com