Notable Mergers and Acquisitions 9/14: (MON) (AEP)/(BX) (AGN)/(VTAE) (SYK)

September 14, 2016 9:46 AM EDT

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*** Bayer and Monsanto (NYSE: MON) announced that they signed a definitive merger agreement under which Bayer will acquire Monsanto for USD 128 per share in an all-cash transaction. Monsanto’s Board of Directors, Bayer’s Board of Management and Bayer’s Supervisory Board have unanimously approved the agreement. Based on Monsanto’s closing share price on May 9, 2016, the day before Bayer’s first written proposal to Monsanto, the offer represents a premium of 44 percent to that price.

“We are pleased to announce the combination of our two great organizations. This represents a major step forward for our Crop Science business and reinforces Bayer’s leadership position as a global innovation driven Life Science company with leadership positions in its core segments, delivering substantial value to shareholders, our customers, employees and society at large,” said Werner Baumann, CEO of Bayer AG.

“Today’s announcement is a testament to everything we’ve achieved and the value that we have created for our stakeholders at Monsanto. We believe that this combination with Bayer represents the most compelling value for our shareowners, with the most certainty through the all-cash consideration,” said Hugh Grant, Chairman and Chief Executive Officer of Monsanto.

Enhanced Solutions for Growers

This transaction brings together two different, but highly complementary businesses. The combined business will benefit from Monsanto’s leadership in Seeds & Traits and Climate Corporation platform along with Bayer’s broad Crop Protection product line across a comprehensive range of indications and crops in all key geographies. As a result, growers will benefit from a broad set of solutions to meet their current and future needs, including enhanced solutions in seeds and traits, digital agriculture, and crop protection.

The combination also brings together both companies’ leading innovation capabilities and R&D technology platforms, with an annual pro-forma R&D budget of approximately EUR 2.5 billion. Over the mid to long-term, the combined business will be able to accelerate innovation and provide customers with enhanced solutions and an optimized product suite based on analytical agronomic insight supported by Digital Farming applications. These are expected to result in significant and lasting benefits for farmers: from improved sourcing and increased convenience to higher yield, better environmental protection and sustainability.

“The agriculture industry is at the heart of one of the greatest challenges of our time: how to feed an additional 3 billion people in the world by 2050 in an environmentally sustainable way. It has been both companies’ belief that this challenge requires a new approach that more systematically integrates expertise across Seeds, Traits and Crop Protection including Biologicals with a deep commitment to innovation and sustainable agriculture practices,” said Liam Condon, member of the Board of Management of Bayer AG and head of the Crop Science Division.

“We are entering a new era in agriculture – one with significant challenges that demand new, sustainable solutions and technologies to enable growers to produce more with less. This combination with Bayer will deliver just that – an innovation engine that pairs Bayer’s crop protection portfolio with our world-class seeds and traits and digital agriculture tools to help growers overcome the obstacles of tomorrow. Together Monsanto and Bayer will build on our proud tradition and respective track records of innovation in the agriculture industry, delivering a more comprehensive and broader set of solutions to growers,” said Grant.

Value Creation

Pro forma sales of the combined agricultural business amounted to EUR 23 billion in calendar year 2015. The combined company will be well positioned to participate in the agricultural industry with significant long-term growth potential. Beyond the attractive long term value creation potential of the combination, Bayer expects the transaction to provide its shareholders with accretion to core EPS (earnings per share) in the first full year after closing and a double-digit percentage accretion in the third full year. Bayer has confirmed sales and cost synergies assumptions in due diligence and expects annual EBITDA contributions from total synergies of approximately USD 1.5 billion after year three, plus additional synergies from integrated solutions in future years.

Financing and Closing Conditions

Bayer intends to finance the transaction with a combination of debt and equity. The equity component of approximately USD 19 billion is expected to be raised through an issuance of mandatory convertible bonds and through a rights issue with subscription rights. Bridge financing for USD 57 billion is committed by BofA Merrill Lynch, Credit Suisse, Goldman Sachs, HSBC and JP Morgan.

Bayer has a proven track record of disciplined deleveraging after large acquisitions and believes that the strong cash flows of the combined business will contribute to improving its financial profile. Bayer targets an investment grade credit rating post-closing and is committed to the single “A” credit rating category over the long-term.

The acquisition is subject to customary closing conditions, including Monsanto shareholder approval of the merger agreement and receipt of required regulatory approvals. Closing is expected by the end of 2017. The companies will work diligently with regulators to ensure a successful closing. In addition, Bayer has committed to a USD 2 billion reverse antitrust break fee, reaffirming its confidence that it will obtain the necessary regulatory approvals.

*** Allergan plc (NYSE: AGN), and Vitae Pharmaceuticals, Inc. (Nasdaq: VTAE) announced that they have entered into a definitive agreement under which Allergan will acquire Vitae for $21.00 per share, in cash, for a total transaction value of approximately $639 million. The Boards of Directors of both companies have unanimously approved the transaction.

The deal comes at a 159% premium to Vitae Pharmaceuticals' Tuesday closing price of $8.10 per share.

The acquisition will strengthen Allergan's dermatology product pipeline, with the addition of VTP-43742, a Phase 2 first-in-class, orally active RORγt (retinoic acid receptor-related orphan receptor gamma) inhibitor for the potential treatment of psoriasis and other autoimmune disorders. VTP-43742 acts through the potent inhibition of IL-17 activity. In preclinical studies, VTP-43742 has been observed to inhibit RORγt activity, is highly selective versus other ROR isotypes and may provide a treatment that could be administered as a once-daily oral dose. The compound recently completed a Phase 2 proof-of-concept multiple ascending dose trial in patients with moderate to severe psoriasis.

The acquisition also adds VTP-38543, a topical LXRβ (Liver X Receptor beta) selective agonist for the potential treatment of atopic dermatitis. It is believed that VTP-38543 works by decreasing inflammation in damaged skin tissue and repairing the damaged outer layer of skin. VTP-38543 is currently in a Phase 2a proof-of-concept clinical trial assessing the safety, tolerability and efficacy in patients with mild to moderate atopic dermatitis.

Vitae has developed and utilizes its Contour® structure-based drug design platform to discover product candidates for validated therapeutic targets where biopharmaceutical research and development has traditionally struggled to develop drugs due to challenges related to potency, selectivity and pharmacokinetics. This has provided Vitae's R&D team the ability to create first-in-class product candidates for challenging therapeutic targets.

"The acquisition of Vitae is a strategic investment for Allergan that adds strength and depth to our innovative medical dermatology franchise," said Brent Saunders, CEO and President of Allergan. "Vitae has pioneered the discovery and development of highly differentiated first-in-class compounds in atopic dermatitis, psoriasis and autoimmune diseases, areas of medicine where innovation is needed for patients."

"The Vitae team has been tremendously successful in discovering and conducting early development work in areas of medicine that can benefit from significant innovation," said Jeff Hatfield, President and Chief Executive Officer of Vitae. "Allergan has a long track record in developing and commercializing innovative dermatologic treatments. I believe our programs will be poised for successful development as part of Allergan's portfolio. I am very proud of the tremendous contributions of our research teams and the clinical community who have led the discovery and development of our pipeline programs, and I thank them for their dedication to this science that may one day help many patients with dermatologic conditions, autoimmune disorders and potentially other conditions."

"Both the VTP-43742 and VTP-38543 programs offer the potential for highly differentiated mechanisms of action for the treatment of dermatologic conditions where patients are underserved by currently approved treatments," said David Nicholson, Chief Research & Development Officer, Allergan. "In addition, Vitae's novel Contour drug discovery platform and its team, which have been instrumental in the discovery of novel 'difficult to drug' compounds, will be highly complementary to Allergan's existing R&D discovery efforts in key therapeutic areas."

Under the terms of the merger agreement, a subsidiary of Allergan will commence a cash tender offer to purchase all of the outstanding shares of Vitae common stock for $21.00 per share. The closing of the tender offer is subject to customary closing conditions, including U.S. antitrust clearance and the tender of a majority of the outstanding shares of Vitae common stock. The merger agreement contemplates that Allergan will acquire any shares of Vitae that are not tendered into the offer through a second-step merger, which will be completed promptly following the closing of the tender offer. Pending approvals, Allergan anticipates closing the transaction by the end of 2016.

Additional information about Vitae, VTP-43742 and VTP-38543, as well as the unmet medical need in the treatment of psoriasis and atopic dermatitis, is available as a slide presentation on the Allergan web site at

Debevoise & Plimpton LLP is serving as Allergan's legal counsel. J.P. Morgan is serving as financial advisor to Vitae and Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP is serving as Vitae's legal counsel.

*** American Electric Power (NYSE: AEP) has signed an agreement to sell four competitive power plants totaling approximately 5,200 megawatts (MW) for approximately $2.17 billion to a newly formed joint venture of Blackstone (NYSE: BX) and ArcLight Capital Partners LLC (ArcLight).

The sale agreement includes:

  • Lawrenceburg Generating Station, 1,186 MW natural gas, Lawrenceburg, Indiana
  • Waterford Energy Center, 840 MW natural gas, Waterford, Ohio
  • Darby Generating Station, 507 MW natural gas, Mount Sterling, Ohio
  • Gen. James M. Gavin Plant, 2,665 MW coal, Cheshire, Ohio

AEP announced in January 2015 that the company was exploring strategic alternatives for these power plants, including a potential sale. All of this generating capacity is located in the region served by the PJM Interconnection.

"AEP's long-term strategy has been to become a fully regulated, premium energy company focused on investment in infrastructure and the energy innovations that our customers want and need. This transaction advances that strategy and reduces some of the business risks associated with operating competitive generating assets," said Nicholas K. Akins, AEP chairman, president and chief executive officer.

"Our employees have done an incredible job operating these power plants in PJM, and I'm confident that they will contribute to the future success of Blackstone and ArcLight. We will continue to operate these plants safely in the coming months while working closely with the Blackstone and ArcLight teams to obtain the regulatory approvals necessary to complete the sale. We also will be working with employees and community leaders to ensure a smooth transition," Akins said.

"Blackstone and ArcLight are two of the leading private equity funds focused on energy infrastructure, with significant investments and experience owning and operating power generation in North America and Europe. Combined they have owned and operated more than 38,000 megawatts of power generation globally, including operations in the PJM Interconnection, New York ISO and Electric Reliability Council of Texas competitive markets in the United States," Akins said.

The sale is expected to close in the first quarter of 2017. AEP expects to net approximately $1.2 billion in cash after taxes, repayment of debt associated with these assets and transaction fees. The company is evaluating options and will share details about its plans for investment of the proceeds from this transaction at an analyst day Nov. 1. These plans may involve reinvestment in its regulated businesses, including transmission; renewable projects; additional debt retirement; and share buybacks.

AEP expects to record an after-tax gain of approximately $140 million from the sale, subject to inventory true-ups, income tax and other adjustments.

The sale is subject to regulatory approvals from the Federal Energy Regulatory Commission, the Indiana Utility Regulatory Commission and federal clearance pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

Goldman Sachs and Co. served as AEP's lead financial advisor for the strategic evaluation of these assets. Citigroup Global Markets Inc. also served as a financial advisor for AEP during the process. Simpson Thacher and Bartlett served as legal counsel.

AEP owns 2,677 MW of additional competitive generation in Ohio. The company is continuing an independent strategic evaluation of that generation while also working on the restructuring of Ohio electricity regulations to allow those assets to be acquired by AEP Ohio for the benefit of its customers. AEP also is continuing a separate strategic review of its 48 MW hydroelectric Racine Plant in Racine, Ohio.

*** Stryker (NYSE: SYK) announced a definitive agreement to acquire the assets of Restore Surgical LLC, d/b/a Instratek.

Founded in 1991, Instratek is a privately held business headquartered in Houston, Texas. Instratek offers a portfolio of staple and hammertoe implants and minimally invasive soft tissue recession instrumentation for foot, ankle and upper extremity procedures.

"This acquisition supports our commitment to growth in extremities with products that complement our existing portfolio, strengthen our leadership in the forefoot segment and provide immediate access into minimally invasive soft tissue recession procedures," said David Floyd, Group President, Orthopaedics.

The transaction is expected to close in the fourth quarter of 2016 and is subject to customary closing conditions.

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