This story has been updated with new information from a letter released today from Origin Technologies to Affymetrix demonstrating an increased financing committment and adressing other concerns.
NEW YORK (GenomeWeb) – An offer by former Affymetrix executives to buy the company under a newly formed shell corporation — and to pay off the cancellation penalties of Thermo Fisher Scientific's previously announced proposal to acquire Affy — has triggered a call and response between Affy, Thermo, and the newcomer Origin Technologies this week.
On Friday, about a week before Affy shareholders were set to vote on Thermo Fisher's proposed $1.3 billion acquisition of the firm, Origin proposed to acquire Affy for $16.10 per share in an all-cash transaction valued at approximately $1.5 billion.
On Sunday Affy released a statement saying that its board of directors reviewed the Origin proposal and believes that it falls materially short of the actual funds that would be required to complete the transaction, including required payments in respect of existing shares, employee equity arrangements, and other anticipated transaction expenses like the termination fee that would be owed to Thermo for cancellation of its prior merger agreement.
"We held preliminary discussions in the fall of 2015 with individuals who became principals and potential backers of Origin, and in November 2015 I invited them to submit a written proposal if they had serious interest in a strategic transaction with Affymetrix," Frank Witney, president and CEO of Affymetrix, said in a statement. "We heard nothing further from them for over four months until they announced their unsolicited proposal on March 18."
In reviewing the proposal, Affy said that it has concluded that Origin appears to be a "newly formed shell entity with no assets of which Affymetrix is aware, and whose sole source of funding for the proposed transaction is $1.5 billion in potential debt commitments." Moreover, this $1.5 billion is not enough, according to Affy, to cover the proposed deal in full.
Based on this, Affy said its board has concluded that the proposal does not constitute, and could not reasonably be expected to lead to, a "superior proposal" as defined in the merger agreement between Affy and Thermo Fisher. As such, Affy said it is precluded by the terms of its merger agreement with Thermo Fisher from negotiating or communicating with Origin with respect to its proposal.
Affy also said that its board continues to recommend to its stockholders the adoption of the existing merger agreement with Thermo.
Thermo Fisher also issued its own release and letter to Affy shareholders Sunday evening saying it agrees with Affy and its board of directors
Analysts last week had suggested that there would be room for Thermo to increase its own offer to counter the new Origin proposal while still getting a good deal, but the company is so far sticking with its original offer, arguing that the current Affy-Thermo merger agreement is a safer and superior choice, despite Origin's proposed higher per-share payout.
"The proposal put forth to Affymetrix by Origin Technologies, a newly created shell entity relying on a vague and insufficient financing package from a Chinese firm, is highly uncertain and speculative and does not constitute, and could not reasonably be expected to lead to, a superior proposal under the merger agreement, and Affymetrix and its board of directors could not reasonably determine otherwise," Marc Casper, president and CEO of Thermo Fisher, said in a statement.
Casper argued that unlike Origin's offer, which was subject to contingencies and submitted without a proposed merger agreement or other transaction documentation, Thermo's agreement with Affy has already been unanimously approved by the boards of both companies and has received all necessary regulatory approvals.
"We are in a position to complete the acquisition immediately following the receipt of Affymetrix stockholder approval this week," he said.
Origin issued its own statement Monday responding to Affy and Thermo, reiterating its offer to acquire all of the company's outstanding shares for $16.10 per share in cash and saying that it remains "committed to completing a friendly transaction."
Despite the caveats raised by Affy and Thermo, Origin said it is confident in its ability to close the transaction expeditiously.
On Tuesday morning Origin followed this up with a letter to the Affymetrix board of directors that include a revised commitment letter from SummitView Capital promising an increased $1.85 billion in financing.
"Based on public filings and after making certain assumptions relating to post-closing costs, we believed that the amounts reflected in the previous letter from SummitView Capital provided sufficient funds to close the transaction. Nevertheless, we understand Affymetrix’ board has questions regarding Origin’s financial ability to complete the proposed transaction," Origin President and CEO Wei Zhou said in the letter.
According to Origin the updated $1.85 billion financing commitment is now "more than sufficient to cover all costs and expenses anticipated to be incurred" in connection with the firm's proposed transaction.
The company also addressed concerns raised by Affy on Monday in regard to the due diligence review that would be required by Origin — saying it could complete its review in less than two weeks. Origin also argued its deal will not require any foreign antitrust reviews and that it is prepared to "take any action required by [the Committee on Foreign Investment in the United States] to obtain approval of the deal.
Finally, Origin said it intends to avoid significant layoffs of Affy employees, which it argued are "contemplated by the existing transaction with Thermo."
"We are confident that after you have considered Origin’s offer in light of this additional information, you will agree that our proposal constitutes, or could reasonably be expected to lead to, a 'superior proposal' under the terms of the existing merger agreement and that our proposal presents a compelling opportunity for your stockholders," Zhou wrote.