Thursday, February 19, 2015

Events Leading Up to Dendreon Bankruptcy Filing and Auction

In February 2014, the Debtors retained Lazard as their investment banker to provide general financial advisory services and evaluate potential strategic alternatives, including assisting the Company in any potential restructuring, sale or financing transaction. Lazard was initially hired to provide assistance with addressing the 2016 Notes, possibly through a refinancing, an extension of the maturity or a conversion of the 2016 Notes to new debt or equity.

The Company concluded that given that it was highly levered and faced significant challenges in achieving positive free cash flows in the near term, the business likely would not be viable on a stand-alone basis absent a strategic transaction or a restructuring of its debt. To that end, Lazard assisted the Debtors in initiating discussions, regarding, among other things, a restructuring of the debt or a potential sale process with the largest holder of the 2016 Notes, Deerfield Management Company, L.P. ("Deerfield") and then with counsel to certain unaffiliated holders of the 2016 Notes (the "Unaffiliated Noteholders"), each subject to NDAs. The Debtors, subject to these NDAs, informed Deerfield and its counsel as well as the Unaffiliated Noteholders and their counsel of the Company's investigation of strategic alternatives. In September 2014, the Company, Deerfield and the Unaffiliated Noteholders mutually agreed that, among the strategic alternatives considered, the appropriate path for the Company would involve pursuing a sale process that would be implemented through the filing of these Chapter 11 Cases.

As the original Bid deadline approached, the Debtors received both conforming and non-conforming bids relative to the bid standards, seeking to qualify as Qualified Bids. As such, Lazard and the Debtors continued to work with interested parties. On January 23, 2015, just prior to the Bid Deadline, the Debtors became aware that Valeant Pharmaceuticals International, Inc. ("Valeant" or the "Purchaser"), a large pharmaceutical company with a market capitalization exceeding $55 billion, was interested in participating in the process. On January 26, 2015, Valeant requested that the bid deadline be extended for approximately two weeks. In order to balance the Debtors' interest in accommodating Valeant's participation with the complaints that surfaced of others that had participated throughout the process, the Debtors agreed to work closely with one other interested party towards becoming a Stalking Horse Bidder. To that end, the Debtors determined to extend the Bid Deadline for two days until January 29th. The Debtors informed all interested parties of the extension of the Bid Deadline and filed an 8-K and a press release announcing the extension.

Subsequently, Valeant also informed the Debtors that they were interested in becoming the Stalking Horse Bidder. Over the ensuing two days, from January 27th to January 29th, significant negotiations occurred between the Debtors and each of the parties interested in becoming the Stalking Horse Bidder. The Debtors ultimately determined that Valeant submitted the highest and best offer at the time to become the Stalking Horse Bidder for the Acquired Assets. Notably, the Valeant Acquisition Agreement included preferable contract provisions, including offers of employment for all employees. The alternative bidder's agreement did not include such provisions.

Subsequent bidding occurred after the filing of the Stalking Horse Selection Motion. The subsequent bidding began on February 3, 2015 when the other bidder that had been interested in becoming the Stalking Horse Bidder informed the Debtors that they would be submitting a new bid later that day or the following morning. They did in fact, submit a fully executed and financed bid late in the evening on February 3rd. The net value of that bid (after deductions from the face value of the bid due to terms in the contract that differed from the Valeant contract) was materially higher than the value of the bid of the Stalking Horse Bidder. The Debtors engaged in five (5) rounds of bidding with the Stalking Horse Bidder and the other bidder over the course of the day on February 4, 2015. At the conclusion of this bidding, Valeant's last bid was materially higher and better than the last bid received from the other bidder. The other bidder advised the Debtors that it would not bid again. The final Valeant bid provided a purchase price of $400 million, reflecting an increase of more than $100 million of value over the original bid filed with the Court in the Stalking Horse Selection Motion. In addition, the bid reflected several valuable intangible benefits that made it preferable to the other bid, including : (i) that Valeant does not require financing to close the transaction; (ii) the ability to close the transaction quickly; and (iii) not only an offer of employment to all employees, but a change in the Acquisition Agreement that provides for the assumption of all contracts on the Amended Notice Of Cure Amount With Respect To Executory Contracts And Unexpired Leases To Be Assumed And Assigned [Docket No. 314], filed with the Court on January 26, 2015 (as may be or has been amended, the “Cure Notice”).
Five rounds of bidding! I wonder who the other bidder was?

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