5/6/2019 - On May 6, 2019, Barrack, Rodos & Bacine, serving as lead counsel, filed a securities class action complaint of BR&B client, Strathclyde Pension Fund, the Court-appointed lead plaintiff, on behalf of a class of investors who either: (1) purchased or otherwise acquired the common stock of Dentsply International, Inc. (“Dentsply”) and its successor-in-interest Dentsply Sirona, Inc. (together “Dentsply Sirona”) between February 20, 2014 and August 7, 2018 (the “Class Period”); (2) acquired shares of the common stock of Dentsply Sirona in exchange for their shares of common stock of Sirona Dental Systems, Inc. (“Sirona”) in connection with the merger of Dentsply and Sirona on February 29, 2016; or (3) are former Dentsply Intl. shareholders who held shares as of December 2, 2015 and were entitled to vote with respect to the merger.  The complaint was filed in the United States District Court for the Eastern District of New York against Dentsply Sirona, certain current and former officers of Dentsply Sirona, and certain former directors of Dentsply.  The litigation seeks to recoup investors’ losses that resulted from the alleged violations of Sections 11, 12(a)(2) and 15 the Securities Act of 1933 and Sections 10(b), 14(a) and 20(a) of the Securities Exchange Act of 1934.

The complaint alleges that during the Class Period, including in the Registration Statement and Prospectus for the merger, Dentsply Sirona and its predecessors made false and misleading statements that gave the market a distorted picture of the company’s true financial and operating condition in two respects.  First, the company failed to adequately disclose a massive build-up of inventory at one of its major distributors, which threatened the company’s ability to maintain (and grow) sales of its key product lines.  The inventory build-up was due to a series of  exclusive distribution agreements that Sirona had entered into with Patterson Companies, Inc., which required Patterson to make large minimum purchases of products regardless of demand from end-user dentists.   Faced with the prospect of continuing to purchase products that it could not re-sell, in November 2016 Patterson announced that it would not renew the Exclusive Distribution Agreements when they expired in September 2017, and commenced a massive “destocking” of the glut of inventory that Patterson had built up.

Second, the company failed to disclose an anticompetitive scheme perpetrated by the company’s distributors, which, the complaint alleges, was known to company officials.  The distributors’ anticompetitive scheme included an illicit agreement to foreclose price competition for dental consumable supplies and dental equipment and, with the assistance of Dentsply Sirona and its predecessor companies, to block lower-priced distributors from entering the market.   

The complaint alleges that the company’s reported sales, earnings and margins were boosted by these schemes, which also served as a basis for the company’s post-merger valuation of its goodwill, representing over 50% of the company’s reported assets.  The complaint further alleges that investors learned the truth about Dentsply Sirona’s financial and operating condition only through a series of disclosures from August 2017 to August 2018.  The disclosures – which led to significant stock price declines – revealed, among other things: (a) the dire impact of the inventory backlog that Patterson had amassed as a result of the minimum purchase requirements in its Exclusive Distribution Agreements; (b) the changes the company was required to make once the distributors could no longer keep their anticompetitive scheme going; (c) that the SEC had opened an investigation into the company’s accounting and disclosures “relating to transactions with a significant distributor of the company”; and (d) billion dollar impairments that the company was required to take in August 2017 and, again, in August 2018. A copy of the complaint is available here.

If you have any questions about the Dentsply Sirona litigation, please contact BR&B partner Robert Hoffman at rhoffman@barrack.com or by telephone at (215) 963-0600.