Cima's Breakup Mess

You'd think Cima Labs (Nasdaq: CIMA  ) would be happy to have its failed merger with aaiPharma (Nasdaq: AAII  ) behind it.

Rather, it has sued the pain management pharmaceutical company, seeking to reclaim the $11.5 million "breakup" fee it paid after agreeing to be acquired by Cephalon (Nasdaq: CEPH  ) instead. In addition, it wants $5 million in damages.

Like the belle of a debutante's ball, the maker of quick-dissolve drugs had suitors lining up to ask for its hand in marriage. First to step forward was the dashing aaiPharma, a former high-flyer who offered an all-stock deal worth $360 million. At around $18 a share, Cima was smitten by the maker of painkillers Darvon and Darvocet and accepted the bid.

Cephalon, however, was a suitor in earnest and tendered a $26-a-share deal, but Cima could not be swayed and rejected the proposal. Some tall, dark, and handsome mystery bidder then offered slightly more than that, and Cephalon countered with a bold cash bid of $34 a share to win Cima's heart. The chaste pharmaceutical swooned over the $515 million proposal and paid aaiPharma $11.5 million to go away.

Now Cima wants its money back, alleging fraud and breach of contract.

It says that had it known the true condition of aaiPharma's finances, it would never have accepted the deal in the first place. Those conditions include allegations of channel stuffing, earnings restatements, management resignations, delisting threats, and SEC investigations. Even though Cima's in a happy marriage now, it still wants its engagement ring back.

Like a proud father, the FTC signed off on the Cima-Cephalon deal, and the former is now a wholly owned subsidiary of the latter. The approval, though, was based on Cephalon agreeing to grant Barr Pharmaceuticals (NYSE: BRL  ) the right to license a generic version of its Actiq cancer pain relief drug, a novel approach to dealing with antitrust concerns. It could have required Cephalon to divest of Actiq before approving of the Cima deal.

With decreasing revenues, rising costs, and a stock price languishing around $2 a share, apparently the only one needing pain relief will be aaiPharma.

Motley Fool contributor Rich Duprey does not own any of the stocks mentioned in this article.