On November 7, Salix Pharmaceuticals Ltd., a leading manufacturer of gastrointestinal disorder drugs and devices announced its proposed acquisition of Santarus Inc., a specialty biopharmaceutical company. The all cash acquisition of common stock was offered at $2.6 billion at $32 dollars per stock. According to a press release obtained from the Santarus website, the $32.00 per share price represents an approximately 36% premium over Santarus’ November 6, 2013 closing price of $23.53 per share and an approximately 39% premium over Santarus’ average closing stock price for the prior 30-day trading period. The proposed transaction has been unanimously approved by both the Boards of Directors of Salix and Santarus, and it is expected that the transaction will close in the first quarter of 2014.
A statement issued by Salix President and Chief Executive Officer, Carolyn Logan, stated, “We are extremely pleased with the Santarus acquisition, which is transformative for Salix both commercially and financially, fulfilling many of our strategic needs while providing immediate and significant accretion in 2014 and beyond.”
However, the proposed acquisition has not been well-received by some of the Santarus shareholders. There are allegations that the directors may have breached their fiduciary duty of care and duty of loyalty. Some of the shareholders might want to exercise their rights to a direct action. This has garnered the interest of shareholder rights law firms in investigating the alleged breach. These firms have issued press releases announcing the investigation and are requesting more information and alerting shareholders about possible representation in a class action.
The Santarus investigation centers on whether or not Santarus directors are acting in the best interest of shareholders. Namely, whether the board is properly considering the proposed price for the shareholders and if $32 per share is adequate valuation and consideration of Santarus common stock. Also, there are questions surrounding whether the board has employed an adequate process to review and act on the proposed transaction.
Within the last year, Santarus’ stock price increased astronomically by 166%. It is alleged that the transaction seems deliberately timed to forestall a surge in the Santarus share price, as it was announced simultaneously with the third quarter 2013 results, which indicated a total revenue growth of 81% and non-GAAP adjusted earnings of over 189%. The timing of the transaction eliminates the market’s ability to respond to the glowing quarterly results, announced concurrently with the merger after the close of the market on November 7, 2013.
As such, it is speculated that the proposed offer price provides an insufficient premium to shareholders. Furthermore, some interested directors and officers of Santarus, who own approximately 12 percent of Santarus total outstanding stock, have agreed to tender their shares into the offer and vote against any competing bids to acquire Santarus.
Amongst the law firms who will most likely be engaged by shareholders in any class action that might arise from the results of the investigations are former United States Securities and Exchange Commission attorney Willie Briscoe and the securities litigation firm of Powers Taylor LLP, Johnson & Weaver, LLP, Block & Levinton LLP. W. Scott Holleman, an attorney for Johnson & Weaver, stated that, “Salix Pharmaceuticals’ offer appears to be inadequate and not in the best interest of the shareholders.” Holleman continued, “Santarus revenues have been accelerating at a tremendous pace and I believe the stock should warrant a higher price.”
While it is unclear if any wrongdoing will be found on the part of the Santarus directors, there is a possibility that the current steam of investigations will gear up shareholders’ participation and review of the transaction. Even the possibility of a direct or derivative action might be a game changer on this transaction. In order to stem any future liabilities, Salix might offer a higher price to acquire Santarus stock.
Well articulated work Toyin!