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Cephalon and Takeover Rival Play Their Cards

Cephalon and Takeover Rival Play Their Cards [the Philadelphia Inquirer]

From Philadelphia Inquirer (PA) (April 22, 2011)

April 22--The attempted $5.7 billion hostile takeover of Cephalon Inc., in Frazer, by Valeant Pharmaceuticals International Inc. moved to the dueling colored-card phase Thursday as each company told the Securities and Exchange Commission that it was sending stockholders notice of its hopes -- and cards.

Gold for Valeant. White for Cephalon.

Valeant will convey information about its offer of $73 per share, which it said could rise if it is allowed to look at Cephalon's books. Valeant hopes stockholders will return its gold card to Valeant and accept the Valeant-picked new board of directors and, ultimately, the deal.

Valeant wants the issue decided by May 12.

Cephalon said it was mailing white cards to shareholders of record, hoping they will return them to Cephalon and decline Valeant's offer.

Cephalon leaders rebuffed Valeant, based in the Toronto suburb of Mississauga, Ontario, when it attempted private takeover negotiations, so Valeant went public last month with its offer, saying it would insert a new board and increase the value of the biopharmaceutical company.

"This is your chance to receive at least $73 per share in cash," Valeant chairman and chief executive officer J. Michael Pearson said in the letter to Cephalon shareholders. "If you want the opportunity to accept our offer, we urge you to complete, sign, date, and return the GOLD card that will be included with our definitive consent solicitation statement."

If Valeant doesn't get a majority of shares voted its way by May 12, Pearson wrote, "we intend to withdraw our offer and pursue other opportunities."

Cephalon's board and CEO Kevin Buchi countered the public comments by Valeant leaders and said Valeant was trying to buy Cephalon on the cheap.

"Protect the value of your investment," Cephalon said in its letter to shareholders. "Do not consent to Valeant's attempt to put its handpicked slate on your board. Maximize the value of your shares by supporting your current board of directors -- please sign, date, and mail the enclosed WHITE consent revocation card immediately. Valeant's $73-per-share proposal is inadequate and not in your best interests."

The last few months have been tumultuous for Cephalon. Frank Baldino Jr., the founder, chairman, and CEO, died Dec. 16 of complications associated with leukemia. When he was just 33 and a DuPont Co. research biologist, Baldino founded the then-private Cephalon in 1987 and ran it until he took a medical leave in August. Buchi, who has been with the company for 20 years, took his place.

Cephalon has about 4,000 employees worldwide and reported 2010 net sales of $2.8 billion, a 28 percent increase from 2009.

"We now have one of the premier late-stage pipelines in the industry and a geographically diversified business," Buchi said in a company statement in February.

Filling pipelines is a near obsession in the industry because of pending expirations of patents on key drugs. In Cephalon's case, the biggest problem is that narcolepsy drug Provigil will face generic competition in 2012.

Since taking over in 2008, Pearson built Valeant by acquiring other companies, imposing efficiencies learned in his years at McKinsey & Co., and cutting jobs, including in research and development.

"R&D is a very risky investment," Pearson said in an interview with Bloomberg. "The odds of you succeeding in that are kind of against you."

In an April 11 statement filed with the SEC, Valeant had less appreciation for Cephalon's history of turning research into profit.

"Cephalon's pipeline is risky and represents uncertain value," Valeant said. "Cephalon has not developed a major novel product through actual launch since the U.S. launch of Provigil in 1998, which had already been launched in France by another company in 1994. All of Cephalon's other large drugs, including Actiq, Treanda, Nuvigil, Fentora, and Amrix, were all either already marketed or based off of marketed products."

Valeant stock closed up 1 cent at $52.42 on the New York Stock Exchange.

Cephalon's stock closed at $75.91, down 3 cents in trading on the Nasdaq stock market.

For whatever it might symbolize, Buchi is scheduled to ring Nasdaq's opening bell Monday.

Contact staff writer David Sell

at 215-854-4506 or


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Posted: April 2011