The Complaint brings forth claims for violations of the Securities Exchange Act of 1934 against Covetrus, Inc. (“Covetrus” or the “Company”), Henry Schein, Inc. (“Henry Schein”), and certain senior executives of Covetrus and Henry Schein. The Complaint alleges that Defendants made false and misleading statements, as well as failed to disclose material adverse facts about the Company’s business, operations, and prospects on behalf of all persons or entities that purchased or otherwise acquired Covetrus common stock from the start of regular-way trading on February 8, 2019 through August 12, 2019.
Covetrus sells and distributes products and software for veterinarians. The Company was formed through the spin-off and merger of the Henry Schein Animal Health business (“HSAH”), a sixty-five-year-old veterinary supply chain, distribution, and software business, and Vets First Choice (“VFC”), a privately-held start-up that developed an online pharmacy solution for veterinary clinics. Among other things, the Complaint alleges that during the Class Period, Defendants made a series of misrepresentations regarding purported successful integration of HSAH and VFC and HSAH’s supply chain business and technology platform.
Unknown to investors, Defendants’ statements were false and misleading. At the time of Defendants’ statements, Covetrus was unintegrated and wholly fragmented, leading to disappointing sales figures. Furthermore, the HSAH supply chain infrastructure and software platforms were antiquated, utterly fragmented, causing sales declines, and in need of immediate and substantial investments.
The truth was revealed to investors on August 13, 2019, when Covetrus was forced to report lacking integration, awful performance in the Company’s supply chain business, extensive new “infrastructure investments,” and disastrous financial results for the second quarter. The news caused the Company’s stock price to plummet nearly 47% over just two trading sessions, eliminating over $1.2 billion in market capitalization. In the wake of these disclosures, Covetrus acknowledged it needed to be “transparent” with investors and “rebuild trust” with them by holding management “accountabl[e].” Covetrus subsequently terminated several key executives, including its CEO and CFO. Moreover, and as alleged in the operative class action complaint that Lead Plaintiffs filed on May 21, 2020, the Company’s new CEO has extensively corroborated Lead Plaintiffs’ allegations of securities fraud through self-described “honest” and “frank” admissions of lacking integration.
On December 23, 2019, the Court appointed the City of Hollywood Police Officers’ Retirement System and the Pembroke Pines Pension Fund for Firefighters and Police Officers as Lead Plaintiffs and approved Saxena White as Lead Counsel. On May 21, 2020, Lead Plaintiffs filed their Amended Consolidated Complaint. Defendants’ motion to dismiss was filed on July 2, 2020. Briefing on the motion to dismiss is scheduled to conclude by September 25, 2020.