The bench opposite the hamburger joint - the one that the CEOs of Teva Pharmaceutical Industries Ltd. (Nasdaq: TEVA; TASE: TEVA) and Barr Pharmaceuticals Inc. (NYSE: BRL) are alleged to have sat on when they were putting together the acquisition deal - is not mentioned in the lengthy document Teva published earlier this week. The document, which is nearly 200 pages long, does, on the other hand, provide a detailed account of the events which started with the conversation last April between Teva USA president and CEO William (Bill) Marth and Barr CEO Bruce Downey, and culminated in the signing of the acquisition agreement in July this year.
Teva will pay almost $9 billion for Barr, including debt. Barr's shareholders will receive $39.90 in cash for each Barr share plus 0.6272 Teva shares - so at the current share price the share component is worth $28.80, which brings the total payment for each Barr share to $68.73. When the deal was signed, the price was $66.50, but since then Teva's share has risen, lifting the deal price along with it. The price that was set represented a premium of 52.8% over the average price on the market of Barr's share in the 30 trading days before the signing of the deal, excluding the final trading day, by which time rumors about the deal were already spreading, sending Barr's share up.
Downey has disclosed in the past that there had already been twelve attempts to acquire Barr, three of them by Teva. In a filing with the US Securities and Exchange Commission (SEC), Teva notes that between 2002 and 2005, "Teva and Barr representatives were involved, from time to time, in informal talks on the possibility of a deal that would combine the two companies." These talks were preliminary, and did not lead to a specific offer or agreement - and were eventually called off.
Teva, as mentioned earlier, was not the only company that had set its sights on Barr. During the past year, Barr's representatives held a meeting with the representatives of another company which Teva does not name in its report, referring to it merely as "Company A". The talks with the anonymous company were also informal, and centered on a business merger between it and Barr.
Then, in April, a conference was held in Florida, which provided an ideal opportunity for another round of talks between Teva and Barr. Marth had already contacted Downey before the conference opened and informed him that Shlomo Yanai, Teva's president and CEO, wished to discuss the possibility of Barr being acquired by Teva and would be happy to meet him during the conference.
Downey agreed to an informal meeting, which took place on April 28. During that famous meeting on the bench, Yanai named the price that Teva was willing to pay - $60-61 a share for full ownership of the company. The option of a combined share and cash deal came up as early as that meeting, although the distribution between the two was not yet known. Barr, despite being courted by Teva and other companies, had never officially been "on the shelf" and was not actively seeking a sale opportunity. Downey said as much to Yanai when they met, adding that, in his view, the offer undervalued Barr - with a price of $70 per share being closer to the company's real value - but he nevertheless did not rule out further talks, subject to his consulting the Barr board.
Barr plays hard to get
At this point, Teva was still not party to all the non-public information about Barr, and vice versa. After all, these two companies were competitors - Teva is the world's largest generic drugs company and Barr the fourth largest. A week after the Yanai-Downey meeting, Teva and Barr signed a mutual confidentiality agreement, and Barr asked Bank of America Corporation (NYSE: BAC), with which it had worked before, to advise it on the impending deal.
Yanai and Downey met again on June 11, and Yanai raised the offer to $62 per share. Once again Downey said the offer undervalued Barr, adding that he believed the board would turn it down. Yanai replied that the offer could be higher if Teva was given access to more information, and the two agreed on the release of further information. Two weeks later, a meeting was held in New York attended by representatives from Teva, Barr, Bank of America, and Lehman Brothers, which was advising Teva. The representatives exchanged confidential information on the two companies, and by the time Yanai and Downey joined the discussions on the third day of the session, the offer on the table was $64. Yanai said he was keen to wrap up the merger before the end of 2008, so that it would fall within certain accounting rules. Downey continued to play "hard to get", and agreed to consider $68.
At the end of June, "Company A" suddenly re-entered the picture, after a company executive contacted an executive at Barr to inquire whether Barr was considering a merger with an industry competitor. The Barr executive neither confirmed nor denied, and the other executive did not make a new offer. But Company A's part in the story didn't end there. A few days later, the company CEO called Downey and put the question again. Downey did not name Teva, but replied in the affirmative, in response to which the CEO said his company was still interested in a deal with Barr, and that an offer would be forthcoming within a month. Downey asked him to make the offer sooner.
In a telephone conversation on July 2, Yanai and Downey finally agreed on a price - $66.50 per share, with 60% of the payment to be made in cash. On July 8, the Barr board met to consider the terms of the deal, and also discussed the option of opening up the sale process following the contact with Company A, and even leveraging this to obtain a higher price. It was ultimately decided that such a move would not be in the interests of Barr's shareholders, since Teva might withdraw its offer, which they believed was the best that could be obtained. Despite this, the board authorized Downey to continue talks with the CEO of the other company.
Downey and the CEO of Company A had another conversation the same day, and on July 10, they spoke again and set a meeting for July 17, a day before the deal with Teva was finally signed. The meeting was called off after the CEO informed Downey that he would be unable to make him an offer by the agreed date.
On July 16, rumors of an impending acquisition were leaked to the market, and Teva said it was keen to finalize the deal as quickly as possible. The Barr board finally approved the acquisition on July 17, and it was announced the next day. The deal will be completed, subject to the approval of shareholders, towards the end of the year.
Published by Globes [online], Israel business news - www.globes-online.com - on September 18, 2008
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