Immunex Corp. and American Cyanamid Co. have amended theterms of their merger agreement, the two companiesannounced Thursday.

"The terms of the deal as discussed in December haven'tchanged," explained Jason Rubin, Immunex's vice president ofcommunications. "At issue is the need to preserve the mergeras a tax-free reorganization."

Cyanamid of Wayne, N.J., will continue to contribute to themerged entity -- the "new Immunex" -- $350 million in cashand Lederle Laboratories' North American oncology business,as per the terms of the Dec. 1992 agreement. And other aspectsof the merger won't change. Cyanamid will still own 53.5percent of the common stock of the new Immunex (which willcontinue to trade on NASDAQ as IMNX), with the remaining46.5 percent held by existing Immunex stockholders.

However, to keep the merger tax-free in the eyes of the federalgovernment, the cash consideration payable to shareholders issubject to a possible downward adjustment.

The deal specifies that Immunex stockholders will receive oneshare of common stock of new Immunex and a cash paymentfor each share of current Immunex common stock.

That cash payment is to equal $21 -- but this is where theadjustments come in. To ensure the transaction's tax-freestatus, the value of that new Immunex common stock shouldconstitute at least 45 percent of the total value of all mergerconsiderations. If the new stock's market value falls below that45 percent, the cash payment will be adjusted downward tocompensate.

"Since certain assets being contributed by Cyanamid are locatedin Puerto Rico (a manufacturing plant, for example), Cyanamidis required to seek a revenue ruling from the Puerto Rican taxauthorities to approve the transaction using the 45 percentthreshold," the companies said. If a favorable ruling is notobtained, the companies will use a 50 percent threshold todetermine the amount of cash to be distributed.

"The percentage of stock to cash given to the shareholders mustmeet either the 45 percent or the 50 percent level to maintainthe appropriate threshold ruled on by Puerto Rico," saidImmunex's Rubin.

For the 45 percent threshold, Immunex's stock has to hold atabout $40 as of the merger date (Immunex shareholders arescheduled to vote on this May 25); if the 50 percent thresholdapplies, the stock has to maintain at $44. And if the cashpayment to the shareholders turns out to be less than $16.50per share, Immunex of Seattle has the right to terminate themerger agreement.

"In December, when the (biotech) stock prices were high, thiswasn't as relevant an issue to Immunex shareholders as it is atthe current market prices," Rubin told BioWorld.

"We didn't even know there was an issue," said Amy Berler, ananalyst who follows Immunex for Alex. Brown & Co. It couldpresent some difficulty, however, because it has the potentialof starting the stock price "down a slippery slope," she said.

"Whatever you think the Puerto Rico ruling will be, it places ahurdle for the stock at $40," Berler told BioWorld. "What peopledidn't realize was that there was a hurdle there at all. ...Nobody had perceived the cash payment of $21 per share to beat risk, but now it is."

Immunex's stock closed Thursday at $40.50 a share, down$2.25, in trading of more than 1 million shares. In comparison,only about 182,000 shares changed hands Wednesday.

This restructuring "adds uncertainty relative to the structure ofthe deal," said Peter Drake, executive vice president anddirector of equity research at Vector Securities International."There's no stability in the price of Immunex's stock," he said."The cash payment to shareholders almost surely will bedecreased to make sure it's a tax-free transaction."

Nevertheless, Drake said, the merger makes sense from astrategic point of view. He believes it will happen, but "onincreasingly good terms for Cyanamid."

-- Jennifer Van Brunt Senior Editor

(c) 1997 American Health Consultants. All rights reserved.

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