A corporate target of hedge fund activist firm Relational Investors LLC for months, the Woodcliff Lake, N.J.-based company said Monday that Par shareholders will receive $50 in cash for each share of Par common stock. The price is a premium of roughly 37% over the closing share price on July 13, the last full trading day before Monday's announcement.
Its shares, traded on the New York Stock Exchange under PRX, soared about 38% Monday, opening at $51.45 and hovering around $50.50 midday.
The agreement was unanimously approved by Par's board of directors.
Since the fall, Relational, now the company's largest shareholder, has set its sights on the company's underperformance. The hedge fund scooped up an 8.71% stake for about $92.2 million by late November and is now up to almost 10% as of May 4, according to regulatory filings. The firm claimed Par's shares were undervalued because of its "sub-optimal size and product scope."
The San Diego-based investor argued that the board should consider a sale because a strategic buyer could offer potential synergies to justify a premium to the trading value. For much of 2010, Par's shares had been trading at between $27 and $30 per share before climbing as high as $38.95 on Dec. 23, then dropping back down to previous levels. Relational cited operating losses in Par's Strativa branded drugs division for the underperformance. It said Par lacked "visibility" into the sustainability of its business model and did not have a "well-defined capital allocation discipline."
Two primary divisions provide Par Pharmaceutical's revenue stream: a generics division and the Strativa unit. As of Dec. 31, the generics division had 55 product names that brought in about $834.6 million in revenue, down 9% from 2010. That division includes Par's biggest revenue source: high blood pressure treatment metoprolol succinate. About 51% of the dollar decrease was attributed to a drop in the sales of that drug, and further declines are anticipated as competition increases in this market, the company said in its latest 10-K.
Par acquired Anchen Pharmaceuticals Inc. last August for $410 million in cash to boost its generic products portfolio.
The Strativa unit has four branded products: lead product Megace ES, for treatment of anorexia; Nascobal, a vitamin B12 treatment; Oravig, an antifungal therapy; and Zuplenz, a treatment for chemotherapy-induced nausea. The unit generated $91.5 million, down slightly from the prior year's $91.9 million.
"While my focus and that of the Par board of directors was on shareholder value, we are very pleased that Par will be acquired by TPG, a leading global private investment firm whose substantial resources and healthcare experience will enable Par to continue to invest in its future long-term growth," Patrick G. LePore, Par's chairman and CEO, said in a statement.
Under the terms, Par has a go-shop period through Aug. 24. The closing of the transaction is conditioned upon, among other things, the affirmative vote of the holders of a majority of Par's outstanding shares, clearance under the Hart-Scott-Rodino (HSR) Antitrust Improvements Act of 1976, and other customary closing conditions.
Bank of America Merrill Lynch, Deutsche Bank Securities Inc. and Goldman, Sachs & Co. and affiliates acted as financial advisers and provided fully committed financing to TPG. There is no financing condition on the transaction. JPMorgan Securities LLC's Steve Frank and Jim Wollery advised Par, as did law firm Orrick, Herrington & Sutcliffe LLP's R. King Milling, Richard Vernon Smith and Tal Hacohen. Cravath, Swaine & Moore LLP acted as independent legal counsel to Par's board. Ropes & Gray LLP's Will Shields led TPG's outside legal advisers, including Amanda Morrison and Jay Kim.
Todd P. Kelly joined the Dallas Office of Jones Day as a partner in the healthcare and life sciences practice. For other updates launch today's Movers & shakers slideshow.
The Jordan Co. managing director talks about manufacturing M&A with private equity senior editor Jonathan Marino. More video