Thermo Fisher, Affymetrix say ‘no’ to Origin's rival bid

SANTA CLARA, Calif.—Affymetrix Inc. announced that it has reviewed the proposal made by Origin Technologies Corporation, LLC on March 18 for a transaction in which the stockholders of Affymetrix would receive $16.10 per share in cash. In reviewing the proposal, the board of directors notes that Origin appears to be a newly-formed shell entity with no assets of which Affymetrix is aware, and whose sole source of funding for the proposed transaction is $1.5 billion in potential debt commitments. Based on the analysis performed by Affymetrix' advisers, $1.5 billion falls materially short of the funds that would be required to complete the transaction, including the amounts required to be paid in respect of existing shares, employee equity arrangements, existing convertible notes and credit facility, and anticipated transaction expenses, including a termination fee payable to Thermo Fisher Scientific Inc. (Thermo Fisher). Accordingly, the Affymetrix board of directors has concluded that the proposal does not constitute, and could not reasonably be expected to lead to, a “Superior Proposal” (as defined in the merger agreement between Affymetrix and Thermo Fisher). As a result, Affymetrix is precluded by the terms of its merger agreement with Thermo Fisher from negotiating with or providing information to Origin with respect to this proposal. In light of the funding shortfall, the Affymetrix Board has not considered other aspects of the Origin proposal.

"We held preliminary discussions in the fall of 2015 with individuals who became principals and potential backers of Origin, and in November 2015 I invited them to submit a written proposal if they had serious interest in a strategic transaction with Affymetrix,” said Dr. Frank Witney, CEO and president of Affymetrix. “We heard nothing further from them for over four months until they announced their unsolicited proposal on March 18. The Board of Directors of Affymetrix is firmly committed to carrying out its fiduciary duties and maximizing value for our stockholders, while at the same time complying with the customary provisions of our merger agreement with Thermo Fisher."

The Affymetrix board continues to recommend to its stockholders the adoption of the merger agreement with Thermo Fisher.

Affymetrix technologies enable multiplex and simultaneous analysis of biological systems at the cell, protein, and gene level, facilitating the rapid translation of benchtop research into clinical and routine use for human health and wellness. Affymetrix provides leadership and support, partnering with customers in pharmaceutical, diagnostic, and biotechnology companies as well as leading academic, government, and nonprofit research institutes in their quest to use biology for a better world. More than 2,300 microarray systems have been shipped around the world and more than 94,000 peer-reviewed papers have been published citing Affymetrix technologies. Affymetrix is headquartered in Santa Clara, California, and has manufacturing facilities in Cleveland, San Diego, Vienna, and Singapore. Affymetrix has about 1,100 employees and maintains sales and distribution operations worldwide.

Zacks Equity Research reports that Thermo Fisher issued an open letter to the shareholders of Affymetrix Inc. after the latter received a takeover bid from Origin Technologies on Mar 18, 2016. Origin Technologies is a newly created company led by a group of Affymetrix’s former executives.

Of interest, Zacks notes, Origin’s offer comes only a week before Affymetrix’s shareholders are set to vote on the Thermo Fisher-Affymetrix merger. Origin is offering $16.10 per share in cash as terms of the deal, exceeding Thermo Fisher’s $14 offer that Affymetrix already accepted on Jan 8, 2016.

Initially, Origin’s offer had a positive impact on both Thermo Fisher and Affymetrix’s share prices on Mar 18. Going ahead, the expecation is that investors will remain focused on further updates in this regard, Zack opines.

"However, despite this seemingly lucrative offer from Origin, Affymetrix’s management has continued to urge its investors to vote in favor of its merger deal with Thermo Fisher," Zacks analysts wrote. "For starters, Origin’s credibility from a financial point of view is highly doubtful in the market place, given the fact that it relies on a vague and insufficient financing package from a Chinese firm. If the Origin-Affymetrix deal materializes, its prospects will be highly uncertain and subject to speculations.

"Moreover, despite the proposal claiming to be a non-binding one, Origin’s offer agreement lacks clarity as it contains no detailed financing commitment documentation. Given this, Thermo Fisher feels this proposal [is] a highly contingent and insufficient one to be considered as a bona fide proposal."

Zacks expects that the Thermo Fisher-Affymetrix deal, on completion, would likely generate attractive financial returns, including an accretion of 10 cents to its adjusted EPS in the first full year of acquisition, adding the total synergy value is poised at $70 million by the third year post-completion of the deal.

“We believe, given such loopholes and uncertainty, chances are high that Affymetrix’s shareholders will vote in favor of the impending Thermo Fisher-Affymetrix deal,” Zacks concluded.