Or as much of the inside as we’re likely to have. Thanks to @AndyBiotech on Twitter, here’s an SEC document detailing the negotiations between Merck and Cubist. It makes for interesting reading in general – you can see how a deal like this comes together, and all the places where it might have fallen apart – and you can also see that the Hospira patent fight was, in fact, very much on the minds of Merck’s management. Emphasis added in the extracts below:
On October 16, 2014, Mr. Bonney called Mr. Frazier to discuss the Company Board’s feedback in response to Parent’s stated interest in a potential strategic transaction. . .Mr. Bonney informed Mr. Frazier that the Company would continue discussions with Parent only if Parent was prepared to move quickly, to propose consideration payable to stockholders of the Company in excess of $100.00 per Share, and to provide assurance that any definitive transaction document would not be conditioned on the outcome of, or include closing conditions based on the Company’s litigation with Hospira or regulatory decisions about ceftolozane/tazobactam. Mr. Frazier responded that he needed to discuss these terms with Parent’s senior management and consult Parent’s Board of Directors (the “Parent Board”).
. . .On October 23, 2014, Mr. Bonney and Mr. Frazier had two telephone conversations to discuss the potential business combination. . .Mr. Frazier described for Mr. Bonney certain of Parent’s assumptions for the combined businesses and identified certain key areas for further due diligence that Parent would require before signing a definitive agreement, including long-term tax planning, the Company’s pending litigation with Hospira, and the regulatory dialogue regarding ceftolozane/tazobactam. Mr. Frazier also indicated that Parent was prepared to offer between $95.00 and $100.00 per Share, with a portion of that price contingent on the outcome of the Hospira litigation. Mr. Frazier indicated that Parent was willing to accept certain regulatory risk in connection with the potential transaction, but was unwilling to assume all of the risk related to the outcome of the Hospira litigation. Mr. Bonney responded that the deal parameters laid out by Mr. Frazier did not meet each of the conditions set forth by the Company Board, but that he would review Parent’s proposal with the Company Board.
On October 25, 2014, Mr. Bonney informed Mr. Frazier that the Special Committee had discussed Parent’s most recent proposal and considered it inadequate with respect to both price and the proposed contingency associated with the outcome of the Hospira litigation. Mr. Bonney offered to facilitate a discussion between Parent and the Company’s outside patent litigation counsel regarding the status of the Hospira litigation, subject to Parent first entering into an appropriate confidentiality agreement with the Company.
. . .On November 6, 2014, representatives of the Company, external patent litigation counsel to the Company, and representatives of Parent held a telephonic diligence meeting about the Hospira litigation, including the potential outcome and timing of a district court decision. The Company also presented to Parent language for a definitive agreement between the parties excluding conditionality regarding the outcome of the Hospira litigation or regulatory action related to ceftolozane/tazobactam.
The strong impression one gets is that Merck really wanted to do this deal, and was initially trying to avoid exposure to Cubist’s patent issues. But in the end, the only way to do the acquisition was to put in language that excluded this as a deal-breaker. We don’t know what that November 6th meeting concluded about the timing of the District Court’s action, or the likelihood that Cubist would lose – maybe the coefficients in front of those two terms were wrongly estimated? Merck certainly knew that this was an issue, but it was, in the end, not enough to make Cubist undesirable. We’ll see how that works out for them.