How did Pfizer swat off rival Medivation bidders? Price, yes, but a CEO confab helped

By Tracy Staton Sep 1, 2016 10:45am

It didn’t take long for Pfizer to swoop in on Sanofi’s Medivation pursuit. Days after Medivation brought in investment bankers to advise on a sale--and before Sanofi went public with its bid to buy the cancer-focused biotech--Pfizer SVP Douglas Giordano got in touch.

Pfizer was interested, Giordano said. That was April 20.

Such did the negotiations begin for the two merger partners, according to Medivation’s deal proxy, which details the company’s fencing match with Sanofi and its waltz with Pfizer, against a backdrop of behind-the-scenes phone calls, messages, letters, and visits to an electronic data room where Medivation’s proprietary secrets were stored.

Exactly a month after that first contact, as Sanofi was pursuing a hostile deal, as Medivation was fielding a flurry of back-channel calls and messages from the French drugmaker, Giordano called up Medivation CEO David Hung. Pfizer would like to be part of any deal talks, Giordano said. Pfizer thought Medivation would be a strategic fit, he said, and outlined some reasons why.

Pfizer wasn’t alone in its interest, of course, and it wasn’t even second to the party. Medivation was the belle of the M&A ball for almost five months before the deal was made. As soon as rumors of a sale went public March 31, four potential buyers approached, according to Medivation’s proxy, filed this week with the Securities and Exchange Commission.

Four unnamed “industry participants”--which, according to various media reports, might have included AstraZeneca, Amgen, Novartis, Gilead Sciences, or Celgene.

Compared with that rush of initial behind-the-scenes flirtation--and Sanofi’s very public, very intense interest--Pfizer’s early forays appear nonchalant, even lackadaisical. But as we all know, Pfizer’s desire for Medivation was certainly strong enough to yield the winning $14 billion bid.

It was strong enough, in fact, to beat out 11 potential buyers. When it came time for the prospective bidders to get serious--in June, as Sanofi was heaping on the pressure for a sale--Medivation and its reps at J.P. Morgan and Evercore ISI Group contacted a dozen companies that had expressed interest in the past.

At this point, Pfizer shifted into a higher gear, the proxy shows. It was among the first two companies to step up and sign a confidentiality agreement. (According to Reuters reports at the time, the other was Amgen.) Sanofi quickly followed, as did “a number of other interested parties,” the proxy states. That was July 5.

Two days later, Pfizer CEO Ian Read stepped into the picture personally. Read, his R&D chief Mikael Dolsten and his chief oncology development exec, Mace Rothenberg, met with Hung to press their case. Meanwhile, Pfizer’s deal team--and the other confidential bidders--got access to that electronic data room.

By July 13, the group of hopeful buyers numbered 5. Over the following week, Medivation met with all of the bidders’ management teams, one full day at a time. J.P. Morgan and Evercore sent out bidding guidelines, and dangled the prospect of additional access to Medivation’s books and records.

Bidding deadline: August 8.

And the bids duly rolled in. Pfizer’s? $65 per share. Another “interested party” bid much higher at $71 per. Two of the bids included contingent value rights, the goals-based payoff mechanism Sanofi used in buying Genzyme--and proposed in its final public bid for Medivation.

The short list? Pfizer, of course, plus the $71-per-share bidder and one of the CVR packages, proposed by “Company 4” in the form of $63 per share in cash up front, and up to $5 per share in CVRs.

The two left out of that short list weren’t content to stay out, though; they came back with cash bids of $70 and $70.50 per share, and stayed in the running.

Final bids due August 19. One of the bidders dropped out. The rest of the bids ranged from $72.50 to Pfizer’s $77. The second-highest bid was $75.50.

The lowest bidder then dropped out, leaving three. Best and final offers due August 20. Pfizer’s $81.50 prevailed. The other two companies offered $80 and $80.25.

J.P. Morgan and Evercore each allowed that Pfizer’s offer “was fair, from a financial point of view.” Medivation’s board unanimously approved the deal that day. Announced Aug. 22, two days later.

Pfizer's score wrapped up that months-long buyout race.

But at $14 billion, Pfizer is paying a huge premium. At $81.50 per share, the price beat analyst estimates of a "best-case" deal for Medivation. As Medivation noted in its proxy, it topped the company's average closing price over the previous 52 weeks by 69%--and it's a 30% premium to the Aug. 19 closing price. As Bernstein analyst Tim Anderson summed it up simply: "This is a hefty bid."

Will Pfizer's $14 billion bet pay off? All the reasons why buyers were chasing Medivation--among them its blockbuster oncology med Xtandi, all set to add to a buyer's sales, and a much-anticipated late-stage cancer candidate, talazoparib--also apply to Pfizer. The pharma giant sees cost savings, too. Only time will tell how those assets and cuts play out; in the case of talazoparib, years. That wheel of fortune will still be spinning for awhile.

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