Any PPD (NYSE: PPDI) shareholders with something to say about the $3.9 billion sale of the clinical research organization will probably be making their way today to the coastal city of Wilmington, North Carolina.
At PPD’s global headquarters, the CRO has scheduled a meeting for shareholders to vote whether to approve the sale to private equity firms The Carlyle Group and Hellman & Friedman. Online and telephone voting closed Tuesday night.
Shareholder approval would bring PPD closer to concluding a lengthy process that saw the CRO shop itself before a select group of private equity firms only to see offers eroded by the deteriorating global financial markets and the subsequent challenges bidders encountered in securing financing. After the joint Carlyle and H&F bid was announced, PPD commenced a 30-day “go-shop” period in which it could solicit competing bids. No other bidders emerged.
The Carlyle and H&F bid of $33.25 per share was nearly 30 percent higher than PPD’s closing stock price the day before the deal was announced but some shareholders insisted that the offer grossly undervalued the CRO. The most vocal opponents made their voice heard via litigation. Six lawsuits were filed claiming PPD’s executives and board of directors failed to secure a higher price. Among the allegations in the complaints are claims that PPD limited potential bidders by seeking offers only from financial buyers and excluding other CROs. The Hilary Coyne v. Pharmaceutical Product Development suit claims that the 30-day go shop period was “woefully inadequate” and that board members favored the bid from Carlyle and H&F. Choosing another offer over the the Carlyle-H&F deal would trigger termination fees ranging from $58 million to $116 million — fees that would have to be paid by the other bidder. The suit claims the fees were designed “to repel any real competition to the buyout.”
“The preferential treatment accorded to Carlyle and Hellman & Friedman has deprived and will continue to deprive the PPD’s shareholders of the very substantial premium which unfettered and even-handed exposure of the Company to the market could produce,” the complaint said.
In an effort to avoid delaying or affecting PPD’s acquisition, the CRO has entered into a memorandum of understanding with plaintiffs that would pave the way for a settlement of shareholder litigation. That memorandum called for additional PPD disclosure and the CRO subsequently released additional details about its communications with its financial advisers as it weighed the private equity offers. PPD acknowledged that the ultimate Carlyle-H&F offer was below the price initially discussed by Carlyle. But the company said that the $33.25 price represents a decrease of only 11.3 percent from Carlyle’s non-binding indication of interest submitted in July. In that time, stock prices of other publicly-traded CROs dropped 27.8 percent. If the Carlyle and H&F offer were to match that drop, the bid would have been about $27.08 per share rather than the final offer of $33.25 per share.
Details of the proposed settlement haven’t been made public. Court documents show that the parties are now subject to a confidentiality order while plaintiffs are allowed a closer examination of PPD information related to the deal. A settlement approved by the North Carolina Business Court would resolve all claims challenging the merger. But one item that PPD has disclosed is that any settlement will not change the sale price.
“The settlement will not affect the merger consideration per share of $33.25, in cash, without interest, to be paid in the merger,” PPD said in a securities filing. “There can be no assurance that the parties will ultimately enter into a stipulation of settlement or that the court will approve the settlement even if the parties were to enter into such stipulation. In such event, the proposed settlement as contemplated by the Memorandum of Understanding may be terminated.”
Settlement discussions likely won’t conclude for some time. Today, shareholders must decide for themselves whether $33.25 per share is a good deal.