Wednesday, May 20, 2009

Comparing Levels of Sophistication -- Pfizer's Deal v. Schering-Plough's Deal

This is a story of "what's not there" -- in the Schering-Plough "History of the Negotiations" deal disclosures. Consider, for example, "what is there" -- in the Pfizer-Wyeth deal. The differences are truly telling.

This is from the latest SEC Form S-4 (at page 60) filed by Pfizer, as it seeks to acquire Wyeth:

. . . .Between January 14 and January 16, 2009, representatives of Pfizer and Wyeth continued to negotiate the key parameters of a transaction, including that Pfizer would not enter into exclusive arrangements with more than five lenders that would preclude such lending firm from participating in the financing of a possible proposal by a third party in competition with Pfizer’s proposal for Wyeth, would agree to certain restrictions designed to have Pfizer conserve cash prior to a closing in an effort to ensure that the minimum ratings condition was satisfied and that the termination fee payable by Wyeth in the event of circumstances involving a third-party acquisition proposal would be tiered with the lower fee equal to $1.5 billion, and the higher fee equal to $2.0 billion. . . .

Tie-ups with no more than five lenders for the acquiror, as exclusive arrangers -- along with efforts to protect and preserve cash levels, to ensure favorable future debt ratings reviews. [Wachtell Lipton is in on this deal, too.] Both would make higher offers less cumbersome -- thus allowing the boards of both companies to easily satisfy their fiduciary duties. [And, not incidentally, to more easily allow all shareholders to benefit from a truly superior-priced offer.]

Equally importantly, in this vein, note the lower termination fees, even though Pfizer's Wyeth deal is a larger deal (at $68 billion v. $41 billion, for Merck-Schering-Plough).

Each of these considerations is nowhere to be found in the Schering-Plough "Background of the Transaction" section of tonight's preliminary Form S-4. No, there the focus appeared to be "be sure we get some deal -- any deal -- done."

On termination fees, in the Schering-Plough deal (page 58):
. . . .After further discussion among the advisors for Merck and Schering-Plough, Merck and Schering-Plough agreed to an increase in the financing termination fee to $2.5 billion and that the general termination fee would be reduced to $1.25 billion. . . .

Unfortunate, in the extreme -- and telling -- of the "deal-doing" accumen of internal management at Pfizer v. Schering-Plough.

1 comment:

Condor said...

On the "drop dead" date -- Merck filed this additional material -- with the SEC, today:

"Q. What is meant by "drop-dead date" in the merger proxy statement?
A. Merck and Schering-Plough anticipate that the merger will close during the fourth quarter of 2009. While both companies are working together to complete the steps necessary to close the merger, the merger proxy refers to a "drop-dead date" of Dec. 8, 2009. Either Merck or Schering-Plough can terminate the merger agreement if the merger has not been completed by the "drop-dead date."

If, however, certain antitrust approvals, legal or financing requirements have not been met by the "drop-dead date" of Dec. 8, 2009, the "drop-dead date" will be extended to March 8, 2010. . . .