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Fund opposes Sibia deal
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August 31, 1999: 7:38 p.m. ET
Biotech fund refuses to sell stake to Merck; says $87M offer too low
By Staff Writer Martha Slud
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NEW YORK (CNNfn) - A biotech fund that's a major shareholder in Sibia Neurosciences Inc. has refused to sell its shares to Merck & Co., saying Merck's $87 million offer for the drug development firm is too low.
The company's president and chief executive officer said Merck's offer was the best one for Sibia's shareholders.
Merck (MRK) announced Aug. 2 that it would buy La Jolla, Calif.-based Sibia (SIBI), which develops drugs to treat central nervous system disorders such as Parkinson's disease and Alzheimer's, for $8.50 per share in cash. Sibia's stock jumped immediately on the news, surpassing the price of Merck's bid. Shares were unchanged at 8-9/16 Tuesday.
BVF Partners L.P., operator of the Biotechnology Value Fund and holder of a 14.6 percent stake in Sibia, contends in a Securities and Exchange Commission filing dated Aug. 27 that the terms of the Merck deal "do not allow stockholders to participate in Sibia's future success."
Sibia shares over the past year.
The fund, which holds 1.42 million Sibia shares, says the bid doesn't take into account future royalty gains the biotech company is expected to reap from its strategic partnerships with major drugmakers including Novartis and Bristol-Myers Squibb. According to the SEC filing by the fund, Sibia expects to turn a profit in 1999 and earn $22.7 million by 2001.
"Based on Sibia's management's projections of $23 million in earnings in 2001, we believe the Merck offer grossly undervalues Sibia," said Marc Schneidman, a fund associate. "It would be a travesty if the tremendous upside of Sibia was taken away from current shareholders."
He said the fund does not oppose Sibia combining with another company, but that any such arrangement should include some sort of trust fund for drug development royalties from existing partnerships to be paid to investors.
The fund also has said previously it may be willing to buy the common shares of Sibia held by another major stockholder, the La Jolla-based Salk Institute for Biological Studies.
Merck's tender offer is scheduled to expire Thursday. Merck spokeswoman Gwen Fisher said the company expects to complete the acquisition, and that the original terms and timeframe still stand.
"Our view is that we still expect the deal to close in September," she said. "There are no changes in our offer."
Sibia president and CEO William Comer said Merck made its offer and wanted an answer in a week. He said the royalty gains issue was the first thing put on the table during negotiations and Merck would not agree to it.
"I believe at the time of the board's vote on July 30 was a very good offer for Sibia shareholders and to this day it still is," Comer said. "It looked like, frankly, a damn good offer."
While Sibia received calls from bankers claiming to have others interested in the company, Comer said the offers never came through.
"I don't know what to make of it," he said. "We never did get another offer."
At the time the deal was announced, Merck said Sibia stockholders owning about 33 percent of the outstanding shares had agreed to support the deal.
Days after it agreed to the buyout, Sibia disclosed that it was contacted by another suitor that was considering topping the Merck offer. The potential buyer was not named, and no further details were disclosed.
Sergio Traversa, a pharmaceutical analyst at Mehta Partners in New York, said he expects the Merck-Sibia deal ultimately will go through -- although he thinks Merck may have to raise its bid to quell anger among Sibia shareholders. Sibia also faces a shareholder lawsuit that seeks to stop the company from proceeding with the sale.
"My sense is that the deal would go through, and maybe Merck will have to pay a slightly higher price," Traversa said. "For Merck, $87 million is not an enormous amount of money."
Major pharmaceutical companies increasingly are on the hunt to acquire biotech firms, which are pioneering drug development programs based on genetics and other advanced technologies.
Recently, Johnson & Johnson (JNJ) announced it would buy Centocor (CNTO), which is working on cardiovascular, autoimmune and cancer treatments, and Pharmacia & Uphohn (PNU) announced plans to acquire Sugen Inc. (SUGN), which focuses on the oncology and diabetes market.
Shares of Whitehouse Station, N.J.-based Merck, a component of the Dow industrial average, fell 15/16 to 67-3/16 Tuesday.
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