Offer Fails to Compensate Shareholders for Successful Turnaround
TORONTO, March 12 /CNW/ - The Special Committee of the Board of Directors
of Patheon Inc. ("Patheon" or the "Company") (TSX:PTI), today advised
shareholders that the unsolicited offer formally launched on March 11, 2009 by
JLL Patheon Holdings LLC ("JLL") is substantially undervalued, opportunistic
and structurally coercive.
JLL, an affiliate of JLL Partners, Inc. of New York, has filed a takeover
bid circular and related documents in connection with its US$2.00 per share
offer to acquire "any or all" of the outstanding restricted voting shares of
Patheon that JLL does not already own. JLL originally announced its intention
to make an offer on December 8, 2008.
Shareholders are advised to take no action until the Special Committee
has fully reviewed the offer and the Patheon Board of Directors has issued a
formal recommendation to shareholders regarding the JLL offer. That
recommendation and the reasons for it will be included in a Directors Circular
to be mailed to all Patheon shareholders shortly.
Shareholder inquiries regarding the JLL offer should be directed to the
Special Committee, through its information agent, Kingsdale Shareholder
Services at 1-866-851-3212.
The Opportunistic JLL Bid Substantially Undervalues Patheon
Based on its work since JLL announced its intention to make an offer, and
a preliminary review of the formal JLL offer, the Special Committee advises
shareholders that the JLL offer substantially undervalues the Company, its
earnings potential and future growth prospects.
The Special Committee notes:
- The JLL offer is substantially below independent valuation. At US$2.00
per share, the JLL offer is well below the range of US$4.20-$5.00 per
share established in the independent valuation of the Company's shares
prepared by BMO Capital Markets ("BMO"). This independent valuation is
based on the Company's internal business plan, as summarized in the
BMO valuation report. A copy of the independent valuation report is
attached to JLL's offer and is available on www.sedar.com.
- The JLL offer does not reflect Patheon's potential value. If
successful, the JLL offer would deny shareholders value for Patheon's
continuing improvement in profitability and its progress in executing
its restructuring program. For example:
- In the first quarter of fiscal 2009, Patheon increased operating
profit by $7.9 million to $3.9 million from a loss a year earlier
- The Company increased adjusted EBITDA to $12.8 million in the first
quarter from $10 million a year ago
- Patheon has delivered two consecutive quarters of positive EBITDA
from continuing operations in Puerto Rico
- The Company has the potential for margin expansion as a result of
the restructuring plan, rigorous cost containment efforts, and the
ability to leverage available capacity to support further revenue
- As reflected in the BMO valuation, Patheon expects to achieve
$1 billion in revenues and EBITDA margins of more than 20% by 2013.
- Independent third parties also recognize Patheon's potential value.
The consensus of recent analyst target prices for Patheon shares is
between C$4.00 and C$5.00 per share, based largely on expectations
that profitability will improve, consistent with progress to date.
- Shareholders believe the JLL offer significantly undervalues Patheon.
The Special Committee already has received indications from many of
Patheon's significant shareholders that they share the view that the
JLL offer substantially undervalues Patheon.
- JLL's own actions indicate it believes Patheon is worth much more than
it is offering. Although JLL is now offering just US$2.00 per share,
as recently as October 2008, it was purchasing Patheon restricted
voting shares at prices ranging up to US$3.37 (C$3.63 ) per share.
- JLL's offer is a discount to recent share price averages. It is more
than 30 % below the six-month and one-year trailing average trading
prices up to December 5, 2008, the last trading day before JLL
announced its intent to make an offer.
- The timing of the offer is opportunistic. The Special Committee
believes the announcement of the JLL offer was timed to attempt to
take advantage of the marked decline in equity markets and the current
depressed economy and also before shareholders could fully benefit
from Patheon's restructuring program. It was also announced just prior
to the release of the Company's improved quarterly earnings.
- Patheon continuing as an independent company is a viable alternative
to the JLL offer. The Special Committee believes that shareholders can
realize substantial value, well in excess of the JLL offer, by
retaining their investment in the Company and benefitting from the
realization of Patheon's potential. JLL's statement that the Special
Committee has not found a viable option to its offer is incorrect
The JLL "Creeping Takeover" Is Unfair to Other Patheon Shareholders
- JLL has structured its offer to be coercive. The Special Committee
notes that JLL's offer is an "any and all" offer with no minimum
tender condition. This structure allows JLL to "sweep" any tendered
shares at a low price and strengthen its influence over the Company
without properly compensating all shareholders. This potential
"creeping takeover" offers no protection to those shareholders who do
not tender but are left with less liquid ownership positions.
- JLL's press release of March 11 regarding its Patheon ownership is
misleading. JLL currently owns only 1.8% of the outstanding restricted
voting shares of Patheon. It also holds preferred shares which it
could convert into approximately 28.6% of the restricted voting shares
of Patheon -- but only at a price of US$4.77 per share. These
preferred shares do not carry votes for the election of directors. In
its news release, JLL announced that its holdings, combined with those
of persons acting jointly or in concert with it, represent
approximately 40% of Patheon's outstanding restricted voting shares on
an as-converted basis. These holdings appear to consist principally of
the preferred shares, and there is no indication that JLL intends to
convert these shares at the $4.77 per share price.
- JLL is not treating all shareholders equally. It is giving special
treatment to some shareholders through a "side deal". JLL announced
that it has entered into an agreement with certain Patheon
shareholders, led by Joaquin Viso, a director of the Company. These
shareholders received their shares when Patheon acquired MOVA
Pharmaceuticals in 2004 (the "MOVA Group"). The takeover bid circular
does not include the agreement, nor was it provided to the Special
Committee. This agreement does not require the MOVA Group to tender to
the JLL offer, and it appears this agreement would protect the MOVA
Group from certain compulsory acquisitions and subsequent acquisition
transactions so they are "entitled to retain ownership of their
respective Restricted Voting Shares". This protection would allow them
to participate in the future growth of Patheon's business. In the
Special Committee's view, this agreement means all Patheon
shareholders are not being treated fairly and equally through the JLL
offer. The Special Committee intends to review with its legal advisors
the legality of JLL's offer and its agreement with the MOVA Group.
"Consistently since the Special Committee was created following the
announcement of JLL's intention to make an offer, we have made it clear to JLL
that we could recommend acceptance of an offer only if the bid reflected the
fair value of the Company, included a minimum tender condition and was
otherwise consistent with the standstill agreement, and was structured to be
fair to all shareholders during and after the offer," said Paul Currie,
Chairman of the Special Committee. "The JLL offer does not meet any of these
The Special Committee will continue to provide timely information to
Patheon shareholders as needed.
Patheon Inc. (TSX:PTI; www.patheon.com) is a leading global provider of
contract development and manufacturing services to the global pharmaceutical
industry. Patheon prides itself in providing the highest quality products and
services to more than 300 of the world's leading pharmaceutical and
biotechnology companies. Patheon's services range from preclinical development
through commercial manufacturing of a full array of dosage forms including
parenteral, solid, semi-solid and liquid forms. Patheon uses many innovative
technologies including single-use disposables, Liquid-Filled Hard Capsules and
a variety of modified release technologies.
Patheon's comprehensive range of fully integrated Pharmaceutical
Development Services includes pre-formulation, formulation, analytical
development, clinical manufacturing, scale-up and commercialization. Patheon
can take customers direct to clinic with global clinical packaging and
distribution services and Patheon's Quick to Clinic(TM) programs can
accelerate early phase development project to clinical trials while minimizing
the consumption of valuable API.
Patheon's integrated development and manufacturing network of 11
facilities, and 6 development centers across North America and Europe, strives
to ensure that customer products can be launched with confidence anywhere in
Caution Concerning Forward-Looking Statements
This news release may contain forward-looking statements which reflect
management's expectations regarding the Company's future growth of operations,
performance (both operational and financial) and business prospects and
opportunities. These statements are made in the context of the risks and
uncertainties that are outlined in the Company's public documents, which can
be accessed on our website at www.patheon.com or on SEDAR at www.sedar.com.
For further information: Special Committee: Information Agent for the
Special Committee, Kingsdale Shareholder Services, 1-866-851-3212; Media: John
Lute, Lute & Company, (416) 929-5883, email firstname.lastname@example.org