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For Lion, Labor-Intensive Process Narrowed Field Of Suitors from 40 to 6; Highest Offer Tops $12M

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As of late November, six companies had offered to purchase Lion Bioscience's bioinformatics business, with the highest non-binding bid exceeding €10 million ($12 million), according to company documents.

Peter Willinger, chief financial officer of Lion, told shareholders at the company's annual meeting on Nov. 29 that as many as 40 companies were initially identified as potential buyers for the bioinformatics business, but that Lion's management and Viscardi, the firm's M&A advisor, had narrowed that group down to six companies that had made "concrete offers."

Lion recently posted a transcript of Willinger's speech, in German, on its website. While the transcript does not provide very much information on the status of the sale, it does offer some new insights into the company's bidding process, which Willinger described as "labor-intensive."

The bidding process "has also proven that the sales process is not easy," Willinger said. "This has nothing to do with the product itself because SRS is regarded as excellent in the eyes of all market participants. This market is -- as we all had to experience painfully in the last few years -- just not developed enough yet."

In his speech, which was translated by BioInform, Willinger outlined a multi-step bidding process that began with the identification of "more than 40 potential buyers worldwide for our bioinformatics segment, ranging from small businesses to leaders in the world market."

Out of those firms, he said, 16 signed confidentiality agreements and were asked to make indicative offers.


"Could these [contracts] come back to us someday or will the buyer relieve us of all commitments, so we can make a fresh start with no inherited burdens?"

From there, 10 firms made non-binding offers, which Willinger described as "estimates of what they might be willing to pay" based on specific conditions being met. These offers varied widely, he said in his speech. "While one company put forward more than €10 million as a purchasing price, we would have had to bring money to another potential buyer ourselves."

Next, Willinger said, Lion requested more "concrete versions" of the highest bids in order to avoid divulging "confidential information to potential buyers who might only pretended to be interested."

This step "quickly separated the wheat from the chaff," Willinger said. "One potential buyer suddenly had a project with higher priority, another one said SRS did not fit into its strategy after all."

Negotiations with the remaining six bidders "have progressed very far," he said in his speech. "However, we are not alone at the negotiation table and therefore we cannot determine the timeline ourselves."

In his speech, Willinger did not mention that the company had narrowed its list of potential buyers to a single firm, but he told BioInform prior to the November shareholder meeting that Lion was in discussions with only one party regarding the sale of the business. He did not disclose the identity of the potential buyer. [BioInform 11-07-05].

He also said at the time that the company's original timeline for closing the sale by the end of the summer [BioInform 08-08-05]was "too optimistic."

Officials from Lion and Viscardi could not be reached for further comment before press time, so it is unclear how far discussions with the interested party have progressed since late November.

It's very possible that the company isn't going to the highest bidder, however. According to Willinger's speech, a number of factors beyond the purchase price have influenced the negotiations, including the payment schedule, whether the payment is in the form of cash, stock, or a mixture of the two, and whether the purchase price is tied to specific goals or milestones.

Another important consideration, Willinger said, is the status of Lion's existing contracts with customers and third parties: "Could these come back to us someday or will the buyer relieve us of all commitments, so we can make a fresh start with no inherited burdens?"

One factor that has helped the sales process, he said in his speech, is the fact that Lion posted its first quarterly profit during the three months ended Sept. 30, and is on track to reach break-even for its full fiscal year, which ends March 31. Willinger noted that the massive restructuring last March that broke Lion into two segments -- a "holding company" based in Heidelberg, Germany, and the bioinformatics business based in Cambridge, UK -- "was a mandatory prerequisite to conclude a successful bidding process."

In his speech, Willinger added, "Simply put: no restructuring, no break-even, no sale."

-- Bernadette Toner ([email protected]) and Julia Karow ([email protected])

First Bidder to Throw Hat in Ring No Longer in the Picture

The party responsible for opening up the bidding process for Lion's bioinformatics business has not put his money where his mouth is, according to Peter Willinger, Lion CFO.

In a speech at the company's annual shareholder meeting in November, Willinger said that Ian Humphery-Smith, who surprised company officials at Lion's last shareholder meeting by proposing a counter-bid against a potential management buyout, has not followed up on that offer [BioInform 03-28-05].

Humphery-Smith, a former head of the Human Proteomics Organization and current Lion shareholder, proposed the alternative buyout offer on behalf of two venture capital firms. Smith told BioInform at the time that the firms -- FM Fund Management and Zapis Capital Group -- were "definitely" in a position to better the proposed price of €680,000 that Lion's board had set for the management buyout.

However, Willinger said in his speech, Humphery-Smith's "spectacular" appearance at the shareholder meeting "turned afterwards into lukewarm air."

Willinger said that as of late November, "There has not been a single concrete offer from the misty surroundings of Mr. Humphery-Smith." In addition, he said, "There has also not been any explanation why there has not been any offer from them."

In fact, Willinger said, Lion went as far as obtaining an "injunction" against Humphrey-Smith as part of the offering process "because he very obviously tried to disturb" the sales process "by making false statements."

Neither Humphery-Smith nor Lion officials were available for further comment before press time.

-- BT

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