Wednesday, May 20, 2009

The Preliminary Merger SEC Form S-4 Filed Tonight. . . .

I will literally have ten or fifteen posts on it, in the coming days -- but as all the wires are now reporting, as of May 5, 2009, Johnson & Johnson has demanded arbitration (from page 20 -- "Risk Factors") -- just as I predicted William Weldon would:

. . . .The combined company may be subject to a dispute with respect to Schering-Plough’s distribution agreement with Centocor, a wholly owned subsidiary of Johnson & Johnson, for Remicade and golimumab [Simponi].

A subsidiary of Schering-Plough is a party to a distribution agreement with Centocor, a wholly owned subsidiary of Johnson & Johnson, pursuant to which the Schering-Plough subsidiary has rights to distribute and commercialize the rheumatoid arthritis treatment Remicade and golimumab, a next-generation treatment, in certain territories. By its terms, the distribution agreement may be terminated by Centocor upon the occurrence of a “change of control” as defined in the distribution agreement with respect to the Schering-Plough subsidiary. Merck and Schering-Plough believe that the merger does not constitute a change of control as defined in the distribution agreement; therefore, Merck and Schering-Plough believe that completion of the merger will not entitle Centocor to terminate the distribution agreement. On May 5, 2009, Centocor notified Schering-Plough of its intention to arbitrate whether Centocor has the right to terminate the distribution agreement as a result of the merger agreement and the proposed merger.

Merck and Schering-Plough and the combined company would vigorously contest any attempt by Centocor to terminate the distribution agreement as a result of the transaction. However, if the arbitrator required to hear a dispute under the distribution agreement were to conclude that Centocor is permitted to terminate the distribution agreement as a result of the transaction and Centocor in fact terminates the distribution agreement following the merger, the combined company would not be able to distribute and commercialize Remicade, which generated sales for Schering-Plough of approximately $2.1 billion in 2008, and would not have the right to commercialize and distribute golimumab in the future. In addition, due to the uncertainty surrounding the outcome of any threatened or actual proceeding, the parties may choose to settle a dispute under mutually agreeable terms but any agreement reached with Centocor to resolve a dispute under the distribution agreement may result in the terms of the distribution agreement being modified in a manner that may reduce the benefits of the distribution agreement to the combined company. . . .

Much more to come, including CEO Hassan's golden parachute disclosures, and the fact that the Top Five received massive deferred stock unit grants on February 27, 2009 -- while very-actively negotiating the merger's definitive terms (see page 48 "Background of the Transaction") -- and yet, Hans Becherer still approved tons of additional deferred stock units. Astonishing. Simply astonishing. He should not have been allowed to exit so quietly, and gracefully, on Monday morning, in Chicago.


Anonymous said...

But the potential disruption of SP's Remicade and Golimubab deal with JJ is specifically carved out of the definition of Material Adverse Event, correct? So Merck could not walk away based solely on that?

Condor said...

No -- but the value of the deal -- to all parties, as reflected in the NYSE-quoted stock prices of Merck and Schering-Plough, near, at and after closing the reverse-merger -- could decline significantly, from the points at which Goldman Sachs and Morgan Stanley rendered their "fairness opinions".

If that were to occur -- the boards would arguably have a fiduciary duty to re-evaluate the transaction's terms. That might mean revisiting the price paid -- not a walk-away -- but a re-negotiation.

But with this board, who knows?

It might just be "damn the torpedos -- full speed ahead!"

[BTW -- next post: WHO is Company "X"?? That Company "X" declined to bid on Schering-Plough -- after some due diligence. Wild.]


Anonymous said...

And what did that due diligence reveal?

Another phen-fen or Vioxx looming and the associated liabilities?


Condor said...

What we do know, Salmon, is that Company X decided against making a bid shortly after meeting with -- you guessed it! -- Carrie Cox:

. . .On January 25, 2009, Dr. Koestler along with Ms. Carrie Cox, Executive Vice President and President, Global Pharmaceutical Business at Schering-Plough, met with senior members of Company X’s research and commercial teams for a technical discussion focusing on Schering-Plough’s early stage pipeline and the companies’ commercial prospects. . . .Just ten days later, then, the CEO of Company X formally notified CEO HAssan that Company X would be making no bid.

Draw your own conclusions, here, but I can see how any potential bidder might sour on the company, after meeting her. Heh.