Merck just filed an SEC Form 8-K. It provides, among other things, for a reduction of lending commitments, from the lenders financing the Sch-Merck reverse merger, in the event of a sale of the Animal Health businesses.
Now, it may be that this clause never comes into play -- but "nature does abhor a vacuum" -- that is, why spend the time negotiating it, if it were not likely to occur? In any event, do take a look (from Exhibit 10.2 to the Form 8-K) -- and draw your own conclusions:
. . . ."Animal Health Disposition" means the Disposition of all or any substantial part of the animal health business of the Credit Group to any Person other than a Wholly Owned Subsidiary. . . .
. . . ."Specified Asset Sale" means (a) any Animal Health Disposition and (b) any other Disposition or series of related Dispositions by a member of the Credit Group after the Effective Date not in the ordinary course of business excluding, for the purpose of this clause (b), (i) a Disposition or series of related Dispositions (other than JV Equity Issuances) the Net Cash Proceeds of which do not exceed $100,000,000 in the aggregate for such Disposition or series of related Dispositions, (ii) Dispositions in connection with Sale and Lease-Back Transactions that are Designated Financings; (iii) Dispositions by Foreign Subsidiaries (other than JV Equity Issuances) to the extent the Net Cash Proceeds of all such Dispositions by Foreign Subsidiaries do not exceed $500,000,000 in the aggregate, (iv) Dispositions by a member of the Credit Group to another member of the Credit Group, (v) Dispositions pursuant to Securitization Facilities, (vi) Dispositions of securities, money-market funds, loans and instruments that are classified as long or short term investments on the consolidated balance sheet of the Credit Group for the purpose of funding all or a portion of the cash consideration for the Merger, (vii)Dispositions under transactions for the incurrence of Permitted Repurchase Indebtedness and (viii) JV Equity Issuances to the extent the Net Cash Proceeds of all JV Equity Issuances do not exceed $250,000,000 in the aggregate. . . .
. . . .Section 2.19. Mandatory Prepayments and Commitment Reductions. (a) Subject to the terms of this Section 2.19, upon the occurrence of any Specified Asset Sale or Property Loss Event, the Borrower shall permanently reduce the Commitments outstanding as of the date of such Specified Asset Sale or Property Loss Event, in an aggregate amount equal to 100% of the Net Cash Proceeds thereof. The Borrower shall effect such reduction within ten Business Days (if such Net Cash Proceeds are received by any Credit Party or Domestic Subsidiary), or 30 Business Days (if such Net Cash Proceeds are received by a Foreign Subsidiary), after the consummation of such Specified Asset Sale or such Property Loss Event; provided that if the Availability Date occurs during such period, such Commitment reduction shall be effective immediately prior to the Availability Date. If, immediately after any reduction of Commitments pursuant to this Section 2.19(a), the total Loan Exposure would exceed the total Commitments, the Borrower shall, concurrently with such reduction, prepay Loans in an amount equal to such excess. . . .
To be clear, these lending (and asset sale facility) agreements define the "Animal Health Business" to include the Schering-Plough Animal Health businesses, as well as the Merck ones, for the purpose of reducing lending commitments -- at least on, and after, the date of the completion of the proposed reverse merger.
This plainly means an Animal Health business sale -- en todo, or in substantial part, at either Merck, or Schering-Plough -- or both, is under rather serious, and advanced, discussions. Care to call it a "bust-up", now, anyone? And, as additional evidence of the deal's "bust-up-ed-ness" -- how long now, until Johnson & Johnson/Centocor re-surfaces -- on the reclaiming of the Remicade/Simponi rights?
Anyone?
5 comments:
Wall Street Journal report, this afternoon:
"...Schering-Plough Corp. topped the list for Selling on Strength, which tracks stocks that rose in price but had the largest outflow of money..."
Condor:
Just a small point. I have no idea of what animal health is worth, but it has to be larger than half a billion. Merck has a 50% stake in Merial, which employs more than 5,400 people worldwide, had 2008 sales of about $2.6 billion.
The Schering Plough animal health unit, Intervet/Schering Plough Animal health is larger with sales of about $3 billion (if the two are combined the turnover would be ~ $US5.6 billion).
So I would guess this is about FTC required divestitures.
Thanks, Anonymous 123! --
Yes, you are right -- any Animal Health transaction (even if only selling off parts of it, or individual lines of business) is very-likely going to fetch north of $3 billion. And it ought to.
[The lending test is a "greater than" test.]
You are also right that the DoJ/FTC and European Union Antitrust authorities are probably "driving this bus". . . .
However, what these newly-disclosed lending documents say is that ANY deal that generates over $500 million of cash proceeds to the companies, will correspondingly reduce the amount that the lenders are obliged to lend.
So -- I think the NEW learning here is that some form of Animal Health transaction is well-underway, thus the specific mention of it in the bank syndicate documents.
Thanks for your very cogent observations, here! Do stop back.
Namaste
"I think the NEW learning here is that some form of Animal Health transaction is well-underway"
Well, yeah. It was always understood that something would have to be done in the animal health field. Merck can't own both the I/SPAH business AND its 50% stake in Merial. As I read the 8-k, it simply says that the net proceeds from either the sale of I/SPAH or the sale of the Merial stake would be dedicated to the reduction of the lending commitment.
Am I missing something? This really isn't new information to those of us on the animal health side.
Thanks [other] Anonymous commenter!
Part of the point -- for me, at least -- is establishing, as I've been arguing with others for months -- that the SP transaction is essentially a bust-up -- not an intact merger of equals.
Thanks for the thoughts -- and I don't disagree with yur take.
Namaste
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