Saturday, January 05, 2008

Pharmion & Celgene: Figuring Out the Close

The $2.9B acquisition of Pharmion (NASDAQ: PHRM) by Celgene (NASDAQ: CELG) took another step towards closing the deal as the obligatory waiting period as required by the FTC and the Antitrust Improvements Act of 1976 expired, perhaps now clearing the way for smooth sailing to inking the deal in under 120 days. This is good. What remains to be determined is the stock exchange ratio. Previously I believe I mentioned that when Celgene’s stock price got whacked, falling from over $70 per share to $50 per share, essentially as a result of Millennium Pharmaceuticals (NASDAQ: MLMN) rival multiple myeloma drug Velcade® to Revlimid® reported it quadrupled remission rates, that this plunge could ultimately negatively affect the terms of the acquisition. Well I believe that observation was incorrect…

Essentially the ‘merger agreement’ will payout $25 in cash and shares of Celgene common based upon an exchange ratio that will fall in a range from a low of 0.66 shares to a high of 0.84 shares. How will they derive this ratio? Simple…If the volume weighted average price per share of Celgene common stock for the 15 consecutive trading days ending on (and including) the third trading day immediately prior to the closing date of the merger (the "VWAP Closing Price") is between $56.15 and $72.93, then the exchange ratio will be equal to $47.00 divided by the VWAP Closing Price. If the VWAP Closing Price is less than $56.15, Pharmion stockholders will receive 0.8370 Celgene shares for each share of Pharmion common stock, and if the VWAP Closing Price is greater than $72.93, Pharmion stockholders will receive 0.6445. Got it?

< $56.15 – 0.84 shrs + $25.00
= $60.00 – 0.78 shrs + $25.00
> $72.93 – 0.66 shrs + $25.00

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