Directors of ProCyte Corp., calling Scherer Healthcare Inc. anunwanted suitor interested only in their money, unanimously rejecteda three-way merger proposed by Scherer and Derma Sciences Inc.
"ProCyte's board believes that this merger proposal is an attempt byScherer Healthcare to finance the current operations and futuregrowth of its money-losing holdings," the directors said. "The netresult would be to drain cash from ProCyte's treasury rather than toenhance shareholder value."
ProCyte, a copper-based development-stage company in Kirkland,Wash., has 58 employees and expects to end the year with about $40million in cash. Its lead product, Iamin gel, failed to show statisticalsignificance in a diabetic plantar ulcer trial in October. But thecompany's vice president, business development, Karen Hedine, saidProCyte plans to take candidates into the clinic in 1995 for HIV,inflammatory bowel disease and hair loss.
Robert Tucker, Atlanta-based Scherer's chairman and CEO, toldBioWorld that company officials would meet early next week withtheir financial and legal advisers. "At that time we will assess ouroptions," he said. "We continue to be very serious about thissituation.
"We're very disappointed the ProCyte board acted in the manner itdid. We think they've misinterpreted our proposal. They choose toignore the benefits. Next week we will probably be putting out a[news] release as to our next step."
Scherer proposed issuing one new share of its stock for every 3.4ProCyte shares and every 4.1 Derma shares. ProCyte cited theilliquidity of Scherer's stock, the significant insider ownership, andlack of institutional ownership or analyst coverage in its opinion thatthe deal would be detrimental to its shareholders.
ProCyte's stock (NASDAQ:PRCY) closed unchanged Wednesday at$3.03 in trading of 168,000 shares. Scherer (NASDAQ:SCHR), intrading of 1,300 shares, was unchanged at $20.25. And DermaSciences (NASDAQ:DSCI), which hasn't traded in a week, closed at$5 per share.
"Although ProCyte would receive only 42 percent of the combinedentity, ProCyte would be contributing 96 percent of the cash," theboard said. "Additionally, Robert Scherer Jr., the majorityshareholder of Scherer Healthcare, would directly and indirectlycontrol more than 26 percent of the combined entity."
Scherer and Derma Sciences, of Old Forge, Pa., bought 640,500shares, or about 5 percent, of ProCyte before their unsolicited mergerproposal on Dec. 8, making them one of ProCyte's largestshareholder. Scherer was not getting what it believed to be asatisfactorily prompt response, and last week demanded access to thenames of ProCyte's shareholders so it could take its case to them.
Scherer said ProCyte's cash, combined with the proposed company's$50 million in revenues, would result in a viable company goingforward. Derma Sciences focuses on zinc-based products for wound-care indications. It has annual revenues of about $5 million. Scherer,with $45 million in annual revenues, has four business segments:surgical and medical products, medical waste management, researchand development, and consumer health care products.
Joseph Ashley, ProCyte's chairman, president and CEO, respondedto Scherer's proposal in a letter dated Dec. 27. He wrote "that thereare no discernible synergies," that Scherer and Derma Sciencescurrently are overvalued by the market, and that Scherer is"essentially a holding company with 100 percent or majorityinterests in a group of relatively unprofitable businesses that providecommodity-like health care-related products in competitive marketswith limited upside, and which are in need of cash for futuregrowth."
"In short," Ashley's letter concluded, "we view a merger withScherer Healthcare and Derma Sciences as yielding onlydisadvantages for our shareholders. We suggest that SchererHealthcare and Derma Sciences look elsewhere for a solution to itsproblems."
Instead, ProCyte said it would build shareholder value by developingnew copper-based products, acquiring late-stage products, andproviding contract manufacturing services to more fully use existingfacilities. n
-- Jim Shrine
(c) 1997 American Health Consultants. All rights reserved.