FRANKFURT, Germany—Merz Pharma Group—a German pharmaceuticalcompany with a focus on neurology, psychiatry and clinical and aestheticdermatology—has presented a proposal to acquire all outstanding stock of ObagiMedical Products, a Long Beach, Calif.-based specialty pharmaceutical companythat specializes in the development, marketing and sale of skin care systems.The proposal prices Obagi at approximately $383.5 million ($22 per share incash), representing a 58-percent premium over Obagi's closing share price onMarch 14, the last trading day before Obagi disclosed in a Q4 earnings callthat it had brought on a financial advisor to explore "all opportunities."
The proposal from Merz follows a March 20 announcement thatObagi had entered into a definitive merger agreement with ValeantPharmaceuticals International, Inc., under which Valeant would acquire all ofObagi's outstanding stock at $19.75 per share in cash, for an approximate totalof $360 million. Obagi's board of directors unanimously approved thetransaction, which represents a 42-percent premium on Obagi's March 14 closingprice, and recommended that the company's shareholders tender their shares tothe offer. Obagi noted in a press release that "Both parties expect thetransaction to be completed in the second quarter 2013, subject to customaryterms and conditions, including the tender of a majority of Obagi's outstandingshares of common stock and the expiration or termination of the waiting periodunder the Hart-Scott-Rodino Antitrust Improvements Act."
Merz noted in the press release regarding its proposal thatat the time of Obagi's March 20 announcement of the Valeant agreement, "Merzwas engaged in ongoing discussions with Obagi regarding a potentialcombination, and was not made aware that Obagi was contemplating signing a dealwith another party on an accelerated timeframe." In a copy of the letter toObagi's board of directors—which was written by Philip Burchard, CEO of Merz—itwas noted that the interaction between Merz and Obagi has included "(i) thewritten proposal that we provided to Obagi on January 18, 2013; (ii) the manyconversations between our financial adviser, Deutsche Bank, and your financialadviser, Morgan Stanley; (iii) the many conversations between our outside legalcounsel, Weil, Gotshal & Manges LLP, and your legal counsel, Jenner &Block; and (iv) the extensive due diligence investigation that we had beenconducting since the management presentation that we attended on Feb. 21,2013."
Burchard noted in the letter that Merz has "the necessarycash on hand to fund the transaction," and does not require additional duediligence. The company expects that "a transaction with us would be structuredin the same way as your transaction with Valeant (that is, as a negotiatedtwo-step cash tender offer) and we would agree to the same terms as those setforth in your existing merger agreement with Valeant, other than minor changesthat are appropriate given the circumstances."
Obagi has responded to the public release of Merz's proposalwith a press release noting that its board of directors "will evaluate MerzPharma's offer and the merger terms consistent with its fiduciary and legalduties. The Obagi Board of Directors realizes that time is of the essence inthis matter."