Tripos board members and management deliberated for the better part of a year before deciding to sell the company’s informatics business to Vector Capital last November — and only after an agreement with an undisclosed “Indian strategic investor” fell through, the company disclosed this week.
In a proxy statement filed with the US Securities and Exchange Commission, Tripos provided a timeline of the steps that led up to its decision late last year to sell its Discovery Informatics and Discovery Research businesses to two separate buyers, and to liquidate the remainder of its assets.
The document reveals that the process was arduous for the firm’s board and management, who often did not see eye to eye on the question of whether to sell the company’s informatics group or to retain it as a standalone business.
Last January Tripos retained Seven Hills Partners to help it explore its strategic alternatives [BioInform 01-13-06], and the financial advisory firm contacted more than 135 parties “that might be interested in purchasing or merging with Tripos, purchasing the [Discovery Informatics] or [Discovery Research] businesses, or investing in debt or equity securities to be issued by Tripos,” the company said in this week’s filing.
By April, Seven Hills had received eight “preliminary proposals.” These potential partners were “largely foreign strategic investors (several of these from India) and US financial buyers,” the company said in the filing, noting that there was “little interest” from US strategic buyers.
Most of these proposals valued Tripos at “approximately market prices,” with one potential buyer — “a strategic buyer based in India” — valuing the firm at more than $5.00 per share. The company’s shares were trading at around $3.00 at the time.
In May, Tripos entered into discussions with seven parties: the undisclosed Indian buyer, Vector Capital, two Asia-based strategic bidders, and three additional financial bidders. The following month it decided to “pursue exclusive negotiations” with the Indian bidder.
By August, however, “despite repeated requests, the purchaser was unable to provide evidence of a binding financing commitment despite having represented on multiple occasions that such financing would be forthcoming,” according to the proxy statement.
In mid-August, the Indian strategic purchaser reduced its purchase price to $2.40 per share for 51 percent of Tripos or $2.75 per share for the entire company “with very uncertain financing.” Vector, meanwhile, was offering $2.70 per share for the entire company, so the firm ultimately entered into exclusive negotiations with Vector.
That deal hit a snag, however, when Vector decided in September that it was “not willing to proceed with the acquisition of Tripos due to its perceptions of uncertainties surrounding the [Discovery Research] business combined with their lack of expertise in the [Discovery Research] business.”
Vector was still interested purchasing the informatics business, though, and the companies ultimately signed a non-binding deal on Sept. 29 under which Vector agreed to purchase the informatics assets for $29.5 million in cash.
The purchase price was ultimately reduced to $25.6 million on Oct. 31.
Board Argues for Standalone Status
The proxy statement notes several instances over the course of the year in which the firm’s board of directors argued in favor of suspending the sales effort in order to restructure the company as a standalone informatics business. Tripos management consistently argued against that option, citing a number of risks, including “the need for additional financing and the market outlook for the informatics business.”
The difference in opinion began as early as February, according to the filing. “Thereafter, the board of directors and management periodically discussed whether the standalone operation of the [Discovery Informatics] business appeared to be a potential alternative to the outright sale of the business. Management continued to believe an outright sale of Tripos might be preferable to operating as an independent, micro-cap public company, although the board of directors believed that at this stage in the process all reasonable alternatives should be considered.”
“Despite repeated requests, the purchaser was unable to provide evidence of a binding financing commitment despite having represented on multiple occasions that such financing would be forthcoming.”
The board continued to consider operating the informatics business as a standalone company as late as Nov. 18, 2006 — two days before the company publicly announced the asset sale to Vector. Even after LaSalle Bank notified the firm on Nov. 13 that it would not renew its line of credit, “management continued to support an outright sale, while certain members of the board of directors continued to consider whether the standalone operation of an informatics business might offer a viable alternative despite the risks.”
The board held “at least 11 calls or meetings” between Nov. 1 and Nov. 19, when, “based in part upon a fairness opinion rendered by Seven Hills,” it unanimously approved the asset purchase agreement with Vector, believing "that it would be prudent to provide shareholders with the relative certainty represented by the Vector asset purchase transaction.”
After the Sale
Tripos shareholders will vote on the company’s plan to sell the informatics group and to liquidate the company’s remaining assets at an upcoming shareholder meeting, but the company did not provide a date for the event in its proxy statement.
Following the sale, the company expects to distribute between $6 million and $12 million to its shareholders.
The terms of the agreement with Vector call for the firm to hire “not less than 90” informatics employees at their current salary and benefit levels. As of Dec. 31, the company employed 115 people in the discovery informatics group.
In addition, the proxy statement notes that Tripos will assist Vector “in securing an employment agreement or acceptance of Vector’s offer of employment by Bryan S. Koontz,” the company’s senior vice president of discovery informatics.