Horizon bows to Depomed's demands with new bid--but adds demands of its own

Horizon CEO Timothy Walbert

Last month, Depomed ($DEPO) criticized a sweetened, $33-per-share buyout offer from Horizon ($HZNP), claiming the all-stock proposal was "opportunistic" and took advantage of share-price fluctuations. So Horizon is doing something about it.

The company has changed its exchange ratio to account for declines in its stock, offering 0.95 Horizon shares for every Depomed share to keep the offer at $33--"assuming we can come to a negotiated agreement quickly," CEO Timothy Walbert wrote in a Thursday letter to Depomed's board. But Horizon could alternatively offer its target's shareholders a cash-and-stock combination at $32.50 per share if they prefer.

"We would be willing to make our proposal a cash-stock mix with up to 25% of the consideration in cash at the election of Depomed's shareholders. To that end, we have begun to discuss with your shareholders their preference for a proposal with this consideration option," Walbert said, pointing out that there are "obvious costs to us" that come along with including a cash component.

The way Horizon sees it, it's followed through on its promises to Depomed since first offering a buyout proposal--for $29.25 per share--in late May. When Depomed rejected that offer on June 25, its adviser suggested it would come to the table if the Irish drugmaker upped its bid to $32.35 a share.

But when Horizon did, putting forth the $33-per-share offer in late July, it met with another rejection. The new offer didn't reflect an increase in the stake Depomed shareholders would have in the combined company, nor the amount of Horizon stock they would net through a deal.

"The July 21 proposal … takes advantage of a temporary decrease in Depomed's stock price," Depomed CEO Jim Schoeneck wrote to Walbert the following week.

Now, Horizon says it--and many of Depomed's largest shareholders--are "disappointed by Depomed's unwillingness to sit down … and engage in good faith discussions," Walbert wrote.

And if Depomed still doesn't? It's only shooting itself and its investors in the foot, the Horizon chief cautioned. As Depomed delays a tie-up, it's reducing the value of its assets to the Dublin drugmaker by $50 million every three months, Walbert says. And because Depomed's growth relies on M&A--which it can't pursue right now, thanks to its debt levels--"your entrenchment tactics … could actually cost Depomed's shareholders considerable value," Walbert figures.

- read Walbert's letter

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