Behind the Sirtex curtains.
THERE was some extraordinary wheeler-dealing last week before the close of Cephalon's recommended $270 million takeover bid for Sirtex Medical, in a last-minute attempt to extract more for target shareholders.
Cephalon announced a cash offer of $4.85 a share in February after first putting its foot on 19.9 per cent by entering into a pre-bid agreement with Dr Bruce Gray, the chairman and founder of Sirtex. Gray also announced he would accept for his remaining 17 per cent stake, in the absence of a higher offer.
Gray stood to walk away with $100 million pre-tax if the bid succeeded. Cephalon's primary interest was Sirtex's highly promising Sir-Spheres liver cancer treatment.
But the bid ultimately failed because a 9 per cent shareholder, Cancer Research Institute (CRI) – of which Gray is chairman – didn't accept, leaving Cephalon 2 per cent short of its non-waivable 90 per cent minimum acceptance condition. The Cephalon camp consider that Gray effectively controls CRI, but he denies that.
A supplementary bidder's statement lodged by Cephalon makes it clear there were some last-minute attempts to find a compromise. The statement was lodged with ASIC and faxed to the ASX on Tuesday night last week, minutes before the 7pm close.
It revealed Cephalon had new "intentions". The US group said if the bid succeeded and it compulsorily acquired any outstanding Sirtex shares, it would seek to commercialise and publicly float another Sirtex cancer treatment, Thermo-Spheres.
Cephalon said it would procure Sirtex to assign its Thermo-Spheres technology to a Cephalon subsidiary, Thermo Co. Cephalon would initially fund Thermo Co with seed capital of at least $US1 million and receive a right of first refusal to commercialise the product exclusively.
Cephalon intended, within 18 months of the close of the Sirtex bid, to reduce its stake in Thermo Co to 10 per cent by seeking outside investors, which might include a public float.
It's clear the Thermo proposal must have been aimed at securing an acceptance from CRI. Given the timing of the statement there's no way target holders generally could have been made aware of the potential bid sweetener.
The possibility of spinning off the Thermo-Spheres treatment was considered during the pre-bid negotiations which led to the Cephalon offer, but not pursued. It's suggested it was resurrected after a discussion between Cephalon CEO Frank Baldino Jr and Gray on the day before the bid closed.
By the following morning Cephalon had drafted a proposal but was surprised when, just after 6pm, it received a counter-proposal seeking to impose conditions, including the Thermo shares being held in trust, with Sirtex shareholders receiving priority entitlement to any float. Gray is said to have been involved in the talks that day.
The Cephalon camp had concerns the counter-proposal may have posed some problems with the Corporations Act. Cephalon had declared it would not "under any circumstances" increase its $4.85 bid price, and acknowledged it would be bound to the commitment under ASIC's "truth in takeovers" policy. It would have been difficult to agree to a sweetener with conditions that limited the benefit to existing target holders.
With less than an hour to go there was not enough time to resolve the problems, so Cephalon decided not to change its proposal. CRI, therefore, did not accept and all accepting shareholders will get their shares back. As a consequence, Gray won't collect $100 million, but it's unlikely that came as a surprise. |
