sctovc
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE TO
TENDER OFFER STATEMENT UNDER SECTION 14(D)(1) OR 13(E)(1)
OF THE SECURITIES EXCHANGE ACT OF 1934
CEPHALON, INC.
(Name of Subject Company (Issuer))
VALEANT PHARMACEUTICALS INTERNATIONAL, INC.
(Names of Filing Person(s) (Offeror(s)))
Common
Stock, par value $0.01 per Share
(Title of Class of Securities)
156708109
(CUSIP Number of Class of Securities)
Alison S. Ressler, Esq.
Keith A. Pagnani, Esq.
Sullivan & Cromwell LLP
125 Broad Street
New York, NY 10004
(212) 558-4000
(Name, address and telephone number of person authorized to receive notices and communications on behalf of the filing person)
CALCULATION OF FILING FEE
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Transaction Valuation |
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o Check the box if any part of the fee is offset as provided by Rule 0-11(a)(2) and
identify the filing with which the offsetting fee was previously paid. Identify the previous
filing by registration statement number, or the Form or Schedule and the date of its filing.
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Amount Previously Paid:
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Form of Registration No.
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Date Filed: |
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Check the box if the filing relates solely to preliminary communications made before the
commencement of a tender offer. |
Check the appropriate boxes below to designate any transactions to which the statement relates:
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third-party tender offer subject to Rule 14d-1. |
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issuer tender offer subject to Rule 13e-4. |
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going-private transaction subject to Rule 13e-3. |
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amendment to Schedule 13D under Rule 13d-2. |
Check the following box if the filing is a final amendment reporting the results of the tender
offer: o
International Headquarters
7150 Mississauga Road
Mississauga, Ontario L5N 8M5
Phone: 905.286.3000
Fax: 905.286.3050
April 28, 2011
To our fellow Cephalon Stockholders,
The Board of Directors of Cephalon has sent a letter to Cephalon stockholders which
we believe contains numerous misleading statements and claims about Valeants offer to acquire
Cephalon, Valeants consent solicitation process, Valeants nominees for election to the Cephalon
Board, and the current Cephalon Boards efforts to review alternatives and options. As a result, we
feel it is important to respond and set the record straight on these matters.
Cephalon Claim: Valeants nominees were hand-picked to sell Cephalon to Valeant
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Our nominees include recognized top-tier corporate governance experts, deans of some of
the worlds leading universities, and healthcare executives that have overseen substantial
value creation: |
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Abe Friedman: Former Global Head of BlackRocks Corporate Governance and Proxy
Voting; Former Chief Policy Officer and General Counsel for Glass, Lewis & Co.; joined
Glass, Lewis upon its founding and led its proxy research business |
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Richard Koppes: Winner of the National Association of Corporate Directors
Lifetime Achievement Award; Corporate Governance Fellow at Stanford University School
of Law, running Stanfords Institutional Investor Forum and Fiduciary College; Former
General Counsel and Interim CEO of CalPERS |
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Santo Costa: Former Vice Chairman, President and COO of Quintiles, the worlds
largest contract research organization; Director of the Food and Drug Law Institute;
attorney specializing in corporate law for healthcare companies |
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Dr. John McArthur: Former Dean of Harvard Business School; Recipient of
Director of the Year Lifetime Achievement award from the National Association for
Corporate Directors, New England Chapter; Former Senior Advisor to the President of the
World Bank |
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Anders Lönner: Chairman and CEO of Meda Group with extensive experience in
European pharmaceuticals; Has overseen a nearly 3000% increase in Medas share price
since becoming CEO in 1999 |
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Dr. Blair Sheppard: Dean of Dukes Fuqua School of Business; Consulted to more
than 100 companies and governments regarding corporate strategy, including Johnson &
Johnson, GlaxoSmithKline and Eli Lilly |
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Lawrence Kugelman: Former CEO of multiple HMOs and managed care organizations,
including Coventry Health, CIGNA Healthcare of California, United Medical Plan and
Health Plan of America |
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Thomas Plaskett: Director RadioShack; Former director of Alcon; Former CEO of
Continental Airlines and Pan Am; 20 years experience in corporate consulting |
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It is improper and there is no basis for Cephalons Board to assert that these nominees
would not discharge their fiduciary obligations if elected as directors of Cephalon and
work to maximize Cephalon stockholder value in whatever way possible |
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These nominees chose to run for election to the Cephalon Board because they strongly
believe in stockholder choice and they understand that you, Cephalons stockholders, would
be voting for change by supporting our consent solicitation |
Cephalon Claim: Certain other of Valeants nominees have worked with Valeants
directors in other contexts
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Of course, certain of the nominees have worked with Valeants directors in other
contexts. Our definitive consent solicitation statement includes information regarding all
such prior associations |
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These prior associations have enabled Valeant to confirm the skills and experiences of
the nominees, and are a testament to the fact that the nominees include corporate
governance experts and leaders in the pharmaceutical and healthcare industries |
Cephalon Claim: Valeant is trying to pressure [the current Cephalon] Board and
Cephalon stockholders into quickly accepting Valeants proposal without affording [the current
Cephalon] Board any reasonable opportunity to develop and evaluate options
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By the May 12th deadline for the return of your written consent, Cephalon
will have had more than eight weeks to review our initial offer, seek other buyers and
evaluate other options for maximizing value. Since the public announcement of our offer,
Cephalon has not engaged with Valeant or requested that Valeant delay its timetable to
enable negotiations |
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Valeant has acknowledged that the new Cephalon Board could explore all of the options
to maximize value, which include an auction process to try to find a higher bidder |
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Valeant has also stated that, if the nominees elected constitute a majority of the new
Cephalon Board, it is willing to keep its offer open for a reasonable period of time while
the new Cephalon Board evaluates other options for maximizing value |
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Provigil produces nearly $100 million in revenue every month, but will start to be
replaced by generics in less than a year. We believe Cephalons Board should feel more
urgency to move quickly in order to maximize the rapidly eroding value of Cephalon |
Cephalon Claim: Valeant may lower its price if it discovers negative information
that impacts the Company
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Valeant has repeatedly stated that we are prepared to increase our offer price if
Cephalon engages with us and permits us to conduct due diligence and if the results of such
due diligence demonstrate greater value than is supported by Cephalons public filings |
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As Valeants publicly-filed consent solicitation statement confirms, while we fully
expect that due diligence will result in our being in a position to modestly increase our
offer price, it is possible that we could reduce our offer price if the Company takes any
further actions that reduce its value to us and/or if the due diligence reveals material
undisclosed information that negatively impacts the Company. If Cephalons Board is
concerned that we will reduce our offer price, then it should permit us to conduct due
diligence |
Cephalon Claim: Cephalons Board has a strong track record of acting in stockholders
best interests
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Cephalons Board has overseen a compound annual rate of decline in Cephalons share
price of (0.5)% over the last five years |
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During this five year period, Cephalon has spent $2.5 billion on acquisitions and $2.0
billion on research and development, and diluted stockholders by 24%, while returning a
minimal $34 million of capital through a share repurchase |
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Even after over $4.5 billion of expenditure, Cephalons growth outlook is still
negative, with the median of Wall Street IBES estimates projecting a 42% decline in EPS
from 2011 to 2013 |
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Cephalons Board therefore appears to have actually destroyed shareholder value. In
supporting the current Board by not providing your consent to our proposals, you would be
voting for the status quo |
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Where is the evidence that Cephalons Board has acted in your best interests to maximize
stockholder value? |
Cephalon Claim: Cephalons Board and management have a proven history of developing
late-stage compounds, such as Provigil, Nuvigil, Fentora and Treanda, among others
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None of the products Cephalon mentions were truly novel products |
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Provigil was launched by Cephalon in 1998, but another company had
already developed and launched it independently in France in 1994 |
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Nuvigil is based on Provigil |
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Fentora is an alternate formulation of a product that was approved in
the 1960s and was similar to Actiq, a product that Cephalon acquired in 2000 after
it was already approved |
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Treanda had been launched in Germany in 1993, 15 years before Cephalon
launched it in 2008 |
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By its own admission, Cephalons research capabilities are not its area of expertise.
At the Stifel Nicolaus / Thomas Weisel Healthcare Conference, a CEPH executive stated,
were out in the marketplace...trying to buy assets and interesting compounds. Because
what we dont want to do is necessarily rely on our own pipeline of things we invent on our
own, because most of that stuff doesnt work |
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Wall Street analysts believe that there is substantial risk in Cephalons pipeline,
stating Cephalon has a pipeline of lottery cards (Bernstein Research, March 28, 2011) and
since most of Cephalons pipeline is still at least a year or more away from Phase 3 data
(let alone approval), we think there needs to be a much larger discount placed on
[Cephalons] multiple (Jefferies, February 15, 2011) |
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Cephalon has had multiple recent pipeline failures that underscore the risks associated
with its pipeline, including: |
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FDA twice rejected the Jet Lag label expansion for Nuvigil (June &
December 2010) even after Cephalon had announced a positive Phase III trial |
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Cinquil failed to meet all primary endpoints in its Phase IIb trial for
pediatric eosinophilic esophagitis (November 2009) |
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CEPH-701 failed its pivotal trial in AML (June 2009) |
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FDA rejected label expansion for Fentora for pain in opiod-tolerant
patients (May 2008) |
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Shouldnt Cephalons Board explore alternatives for maximizing value before investing
billions more into a risky biotech research strategy that is outside of its historical
focus and expertise? |
Cephalon Claim: The 30-day average on which Valeant based its proposal is near the
stocks 52-week low and Valeants non-binding premium represents virtually no premium to Cephalons
52-week high
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Cephalons Board claims that Valeant was opportunistic in its timing, but in fact
Cephalon was not in a trading trough. When Valeant announced its offer, Cephalon was
trading at a one-month average of $57, but Cephalons three month average was only $58 and
the two year average only $61 |
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Cephalon had traded down due to several substantial pipeline failures mentioned above
and the median Wall Street analyst future price target was only $59.501 |
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While the Cephalon stock price was $57, 68% of Wall street analysts still gave Cephalon
a Sell or Hold rating |
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In fact, Morgan Stanley issued a detailed 48-page initiating coverage report on March
11, 2011, just weeks before Valeants offer, which concluded the DCF midpoint for Cephalon
should be $55 |
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Cephalons 52-week high in April of 2010 appears to be the abnormality, since it was
achieved on the day before the FDA rejected Nuvigils Jet lag application. Cephalons
stock fell by 19% to $59 over the following two months |
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Why does Cephalons Board maintain Cephalon was trading below its true value when the
numbers seem to point to a market valuation (absent our offer) of less than $60? |
Cephalon Claim: Valeants premium is below the median for U.S. life-science
acquisitions since 2006 and the historical EBITDA multiple is below the median for all drug
takeovers over $1 billion
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Cephalon cannot be valued in comparison to other industry transactions because of the
Provigil patent expiration. We do not know of any other transaction where 41% of the
revenues of the target company were going to be subjected to generic competition within 12
months |
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Biotech companies, which Cephalon includes in its life sciences category, are
especially irrelevant as they typically have above average premiums to account for
exceptional growth. The median estimated annual EPS long-term growth rate of mid-sized
biotech companies was 39% as of March 28, 2011. Even other specialty pharmaceutical
companies have a median 11% EPS annual long-term growth estimate |
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Inclusive of base case DCF value when no
price target is available. |
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Using a historical multiple for comparison is highly misleading, since it greatly
overstates Cephalons EBITDA in comparison to expected future performance. Again,
comparable transactions typically have growing EBITDA, not an impending rapid loss of
EBITDA |
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Since Cephalon is in a unique situation with earnings expected to rapidly decline, it
should be valued based on its own business model and situation |
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If our offer price represents such a low valuation, why would Wall Street analysts
describe our offer as follows: |
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CEPH owners should take $73 (Jeffries, March 30, 2011) |
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We view the deal terms as reasonable and would recommend selling CEPH
shares here (Barclays, March 30, 2011) |
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The offer presents an upside case for CEPH shares (JP Morgan, March
30, 2011) |
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An attractive exit for shareholders given near-term obstacles CEPH
faces (Oppenheimer, March 30, 2011) |
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Offer terms provide fair value to Cephalon investors (Stifel
Nicolaus, March 30, 2011) |
Cephalon Claim: Cephalons Board is presently undertaking a review of all of the
Companys alternatives and options
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Exactly which alternatives and options are being reviewed beyond the continuation of
Cephalons current risky standalone strategy? |
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Cephalons Board has not demonstrated why their standalone strategy will be worth more
than Valeants $73 offer. If Cephalon continued its current five year trend, the share
price would be in the mid-$50s for the next several years |
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What is the timeline for this review and has Cephalons Board factored in the urgency of
declining value associated with Provigil? |
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How can Cephalons Board truly be undertaking a review of all alternatives if it has not
even engaged with the only known bidder to see what offer it could make after due
diligence? |
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Why cant Cephalons Board be more transparent about what it is doing? |
Cephalon Claim: Valeant has not indicated its Board nominees intend to seek and
consider superior alternatives
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We believe our nominees have the right experience, skills, and qualifications to
effectively maximize value for, and properly represent, the interests of Cephalons
stockholders and will be committed to exploring all of the options to maximize value,
consistent with their fiduciary responsibilities. As previously stated, those options will
potentially include: |
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Providing access to due diligence to, and negotiating with, us with a
view to achieving a higher offer; |
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Conducting an efficient auction process while our offer is open; |
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Negotiating a merger agreement with us, which could include a go-shop
provision so as to allow Cephalons Board to determine if there is a bidder willing
to pay a higher price |
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We expect the nominees to fully discharge their fiduciary obligations and, if the
nominees elected constitute a majority of Cephalons Board, we would be willing to keep our
offer open for a reasonable period of time while the new Cephalon Board explores Cephalons
options. |
Its time for Cephalon Stockholders to have a Board of Directors that Understands Stockholders
are the Real Owners of the Company. Vote for a New Cephalon Board And Send a Message That You Want
Your Representatives To Evaluate All Options to Maximize Value
Sincerely,
J. Michael Pearson
Chairman and Chief Executive Officer
Valeant Pharmaceuticals International, Inc.
* * *
Forward-looking Statements
Certain statements made in this communication may constitute forward-looking statements of
Valeant, including, but not limited to, statements regarding our offer to purchase Cephalon,
financing related to the proposed transaction, our consent solicitation process or our intention to
commence a tender offer, our opportunities and our plans should we acquire Cephalon, the effect of
the proposed transaction on financial results, and certain financial projections. Forward-looking
statements may be identified by the use of the words anticipates, expects, intends, plans,
should, could, would, may, will, believes, estimates, potential, or continue and
variations or similar expressions. These statements are based upon the current expectations and
beliefs of management of Valeant and are subject to certain risks and uncertainties that could
cause actual results to differ materially from those described in the forward-looking statements.
These risks and uncertainties include, but are not limited to, risks and uncertainties discussed in
Valeants most recent annual or quarterly report filed with the Securities and Exchange Commission
(SEC) and Canadian Securities Administrators (CSA) and other risks and uncertainties as
discussed from time to time in Valeants filings with the SEC and the CSA, which disclosures are
incorporated herein by reference. Readers are cautioned not to place undue reliance on any of
these forward-looking statements. Valeant undertakes no obligation to update any of these
forward-looking statements to reflect events or circumstances after the date of this communication
or to reflect actual outcomes except as required by securities laws. You are advised, however, to
consult any further disclosures we make on related subjects in our filings with the SEC and the
CSA.
Certain Information Concerning Participants In Solicitation; Additional Information and Where to
Find It
This communication may be deemed to be solicitation material in respect of the proposed
removal of directors from, and election of directors to, the Board of Directors of Cephalon, as
well as the repeal of any changes to Cephalons Bylaws. Valeant filed a definitive consent
solicitation statement with the SEC on April 21, 2011. THAT DOCUMENT SETS FORTH THE IDENTITY OF THE
PARTICIPANTS IN THE SOLICITATION AND A DESCRIPTION OF THEIR DIRECT OR INDIRECT INTERESTS, BY
SECURITY HOLDINGS, OR OTHERWISE, AND IS ALSO AVAILABLE AT THE WEB SITE MAINTAINED BY THE SEC AT
WWW.SEC.GOV. OR FROM VALEANTS WEBSITE AT WWW.VALEANT.COM UNDER THE TAB INVESTOR RELATIONS AND
THEN UNDER THE HEADING SEC FILINGS, OR , FOR FREE, BY DIRECTING A REQUEST TO VALEANT, 7545 IRVINE
CENTER DRIVE, IRVINE, CALIFORNIA, 92618, ATTENTION: CORPORATE SECRETARY. It includes the form of
gold consent card to be completed and delivered by each Cephalon stockholder that desires to
provide written consent in connection with the consent solicitation.
This communication does not constitute an offer to buy or solicitation of an offer to sell any
securities. No tender offer for the shares of Cephalon has commenced at this time. In connection
with any tender offer and its consent solicitation, Valeant will file relevant materials, which may
include a tender offer statement and/or other documents, with the SEC. ALL INVESTORS AND SECURITY
HOLDERS OF CEPHALON ARE URGED TO READ ANY SUCH DOCUMENTS FILED WITH THE SEC BY VALEANT CAREFULLY
AND IN THEIR ENTIRETY, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. Investors and security
holders will be able to obtain free copies of documents filed with the SEC by Valeant (when they
become available) in the same manner as set forth above with respect to the definitive consent
solicitation statement.