He's a heavy hitter from the other side of the Bay. Perhaps he'll lead the charge so he can use it as a case study in his Stanford law class. I wonder if he's conflicted. This clash looks like it will be the proxy fight of the year.
Interesting Math Shell. Based on HZNP's .95 per share exchange offer, DEPO would have an enterprise value of close to $3 billion (market cap plus debt). Considering that they recently paid $1.05 billion for the North American marketing rights to Nucynta, and giving them a 5 month ramp premium of $100 - 200 million (est.), you are suggesting that the rest of their portfolio is worth around $1.7 billion (synergies included). Depomed only has 4 drugs, not 7. Lazanda is small and fills a small niche market for breakthrough cancer pain in a crowded Fentanyl space. Gralise was their flagship product before they bought Nucynta and based on comps in the industry and expected patent shelf life, may be worth $300 million (perhaps a stretch). It's a liquid diclofenac and Tim already has the Penssaid platform. Cambia for migraine is being superceded by newer migraine treatments, but may be worth $150 million (also a stretch).. Glumetza has already been divested and was non-strategic. Plus they also have a convertavble bond outstanding that's about 250 million. The sales force is a little large for the size of their market, IMHO and very expensive to maintain (especially since HZNP has a strong sales force of their own).. It seems to me that buying DEPO is a real expensive way of buying Nucynta, especially since he would have take on DEPO's debt as part of the package. More likely, he was simply outbid
at JNJ's gate and in frustration, he feels that the only way to get back in that game is to take over the Company. Or perhaps, it's not business; it's just personal.
Unless I've read it wrong, they've agreed to a consolidated meeting and are allowing a vote, be it at a later date than originally proposed. The earlier letter referred to the lack of a shareholder slate that was being proposed at the same time HZNP was interested in removing the Board. Now that the slate has been proposed that issue is clarified. In a legal battle, one has to understand where the enemy is coming from. If they see any holes in their strategy, they will attack like Lao Tzu warriors.
Yes, I have taken the time to read the SEC 425 filing and no, there is no agreement between the two of us as you said "that the BOD is stating misinformation and distorting facts...." I never said that they were doing this at all. Tim's assertion that the Board is working primarily to entrench themselves is just one man's opinion. This is typicall language that is used in a legal fight to make the other party look bad. The Board acted unanimously after seeking outside counsel. Both their legal and financial advisors recommended their course of action and although they were hired to advise DEPO's Board, I doubt they would do so for the purpose of furthering self-entrenchment. There's too much at stake, both legally and reputationally for them to pursue an errant course of action. Moreover, it was HZNP's own initial sloppiness in their first filing that led to this cascade and enabled DEPO's Board to stall. Why should they accelerate the process when independent valuation consultants found the conversion too low?
Deception is a harsh word, suggesting an intent to conceal and distort facts. In effect, a Board acting this way would be guilty of "obstruction of justice." Let's see if the Bbounty hunter attorneys who piled on after DEPO's announcement will find anything in their investigation, suggesting a breech of fiduciary duties. Perhaps a more accurate description of this would be navigating strategies in a state of war and attempting to fend off a hostile party. HZNP's offer is not fixed at 33. DEPO's share price has traded near a 95% conversion rate since the offer was announced, so current shareholders have had plenty of opportunities to sell and have not been at risk. They can also hold on to their shares, as I have. HZNP will get their vote anyway, just not immediately, as they have demanded.
You accuse them of deceit, distortion and misinformation. These are very strong accusations. The Board is well aware of their fiduciary responsibilities and despite blanket D & O coverage, they have no interest in being sued. Perhaps it would be more fair to recognize that they are the target of a hostile bid and are building a defneisve strategy. Look at the definition of deceit and see if it really applies to them.
When the stock fell below 28, DEPO's Board had no problem turning down the offer., since the conversion rate at .95 would have given DEPO shareholders a price nearly 20% below the $33 proposal. However, if HZNP's share price returns to the high 30s, DEPO's takeout price in a combined DEPO/HZNP company will be significantly higher than the $33 bid (which is what they said they wanted). So, perhaps it doesn't matter whether shareholders get 28% or 33% of HZNP, if HZNP's share price goes up. Tim would then have some wiggle room to either stick to his $33 share price with a smaller conversion ratio, or go a little higher.
They will only respond when they are legally required. I may be wrong, but I don't think they'll respond to this last letter. Jim sees no purpose in initiating a dialogue with a hostile party. While some may agree with Tim's points, the language of his letter reveals a deep contempt for DEPO's management and Board. Remember, this is war. Hostile proxy fights are seldom one-sided. In many cases, the losing party has to pay for the legal and administrative costs of both parties. If HZNP wins, the costs will be imbedded into the share price. However, if DEPO wins, HZNP may have to cut a check.
Where do you think ovartis, Exel'spartner, is domiciled? These are the same guys who acted as fence for the Nazis during WWII.
I don't think HZNP will drop their bid. They're already into this quite deep and put a Stanford Law professor on their slate of directors who specializes in shareholder rights in California. This will be a fight to finish.
Most small cap biotechs are weak today. We're approaching the end of the month and in addition to portfolio paring, we're at the start of the tax selling season. I don't see any intrinsic reason for the weakness and I'm adding today.
We were at these levels back in the Spring before HZNP announced their offer. In my experience, a Company can come out with good earnings, but weak future guidance. In the majority of those cases, the guidance overcomes the trailing results. So we have a difference of opinion.
I don't think the $33 offer is still on the table. HZNP clarified the offer with a .95 exchange ratio based on an average trailing price of HZNP shares. It was 33 at the time that HZNP was at 35. What will be interesting to see is if HZNP's share price goes back up around the time of the proxy mailings. Then the big institutions can decide what they want to do.
In a stock deal, DEPO shareholders would be new shareholders of Horizon. Even if some institutional shareholders own large positions of both companies, they may choose to keep their stake in a management team that has executed beatifully over the past three years. I think that DEPO's share price is holding at this level, not in anticipation of a merger with Horizon, but based on management's vision and guidance towards 2016 and beyond. At Horizon's current prices, DEPO shareholders would get between 28 - 29 for their shares (based on a .95 exchange ratio). How could the Board justify that price when we were offered $33 a few weeks ago. Moreover if we actually did receive $33 and the stock market tanks, what happens to the price of our shares in the months prior to closing. We would be judged more on the merits of Horizon in the interim, rather than DEPO's operating results.
You bring up a good point. Perhaps DEPO is stalling until they know the results of the FA trial. One might think HZNPis fairly valued without positive results for the FA label extension. However, the Market often punishes biotech stocks when a trial fails, even if the results have no effect on the intrinsic value of the Company.
I think DEPO's Board is being fair. Originally, they didn't want to have a proxy where the Board would be removed without replacements which would have led to chaos. Now that HZNP has assembled a slate a simultaneous vote to remove the Board and takeover the Company is inplace. We will then have an even playing field for the proxy fight. DEPO will try to convince the largest shareholders that they are better off on their own. 33 is way out of the question as the .95 exchange ratio is in place.