Cephalon takes another run at Cima
Susan Feyder, Star Tribune
Published September 12, 2003 CIMA12
Spurned in its first attempt to acquire Cima Labs, Cephalon Inc. is ready to try again.
Cephalon, based in West Chester, Pa., has sent the drug delivery company a new letter asking it to negotiate and saying it is willing to modify the terms of the deal.
Eden Prairie-based Cima last week rejected a $26-a-share cash offer from Cephalon, saying the bid was inferior to an all-stock offer approved by the Cima board from aaiPharma Inc. of Wilmington, N.C. Cima said Thursday its board will meet again, though it didn't specify when, to evaluate Cephalon's latest move.
When it was announced last month, the aaiPharma bid was valued at about $22 a share, prompting criticism from institutional shareholders in Cima that the offer undervalued the company's shares. But a recent rise in aaiPharma's stock price has pulled the value of the deal closer to Cephalon's $26-a-share bid.
On Thursday, aaiPharma's stock jumped 6 percent on news that the company had received government approval to market a new formulation of the painkiller Darvocet.
That, in turn, pushed the value of aaiPharma's offer ahead of Cephalon's to $26.58 share.
Meanwhile, Cima stock rose about 2 percent to close at $27.75 a share. Money managers and analysts have said that the rise of Cima stock above either offering price suggests that investors believe better offers will surface.
In a phone interview Thursday, Cephalon CEO Frank Baldino said his company's latest offer reaffirms its belief that its bid is superior to aaiPharma's. Cima has said its agreement with aaiPharma doesn't permit it to negotiate with other bidders unless it determines their offers are more favorable than aaiPharma's. That company issued a statement Thursday saying it continues to believe its offer is the best.
"Clearly the message [from the latest offer] is that we stand ready to negotiate," Baldino said. The letter says Cephalon would be willing to modify its proposal to allow Cima shareholders to choose between cash, Cephalon stock or a combination of both. Asked if that also implies a willingness to raise the price, Baldino said, "The letter speaks for itself."
Baldino said Cephalon has options to pursue if Cima still refuses to negotiate. He declined to elaborate, but added, "It's hard to imagine in the current business environment how a board of directors of a publicly traded company like Cima would not talk to another company that has made an all-cash bid . . . and is flexible on how that is paid."
Cima already is facing three lawsuits from shareholders accusing the company and its board of neglecting stockholders' interests by not adequately considering Cephalon's bid. On Thursday, money managers agreed that Cima would be hard-pressed to reject Cephalon's latest bid for talks. At the same time, they said in order to make a bid clearly superior to aaiPharma's, Cephalon or any other firm may have to offer $30 to $32 a share.
Dan Antonelis, a portfolio manager at Stone River Capital in Jackson Hole, Wyo., said Cima officials told him Thursday they considered Cephalon's first bid a "take it or leave it" deal.
"This new offer, which suggests some flexibility, gives Cima the room they need" to negotiate with Cephalon, Antonelis said.
Baldino said Cephalon has not initiated calls to Cima shareholders to lobby them, but has responded to calls from investors who are concerned over the aaiPharma deal. Baldino has personally made some of those calls.
Cima stockholders are currently scheduled to vote on the aaiPharma merger later this year.
Chris DeMuth, a portfolio manager at Mangen & McColl Partners in Charlotte, N.C., said he spoke with Cephalon officials last week. He said they asked him whether his firm planned to vote for the aaiPharma offer and discussed what he would consider an acceptable counteroffer.
Matt Arens, a senior analyst at Kopp Investment Advisors in Edina, said Baldino, with whom he spoke earlier this week, "clearly is being very receptive to incoming calls." Kopp holds just under 7 percent of Cima's shares and is one of its largest stockholders.
Arens said his chief concern is that shareholders' interests are put before the interests of Cima officers. Cima's chairman and CEO, Steven Ratoff, took part in the discussions that led to the board's rejection of the Cephalon bid despite his being one of only two Cima executives who has been assured a role -- vice chairman -- in top management of a merged Cima/aaiPharma. Cima's manufacturing operations would remain in Eden Prairie and Brooklyn Park, but the headquarters of the merged company would be in Wilmington, where aaiPharma is located.
Baldino declined to comment on whether any Cima executives would be retained if Cephalon acquired the company. He said headquarters for a merged Cima-Cephalon would be in Pennsylvania, but Cima's manufacturing operations, which now employ about 270 people, would remain in Minnesota and could expand if Cephalon transferred some operations from Salt Lake City.
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