The “View from the Board: Responding to an Acquisition Offer” panel at the 2018 BIO Investor Forum focused on real world scenarios and practical advice. The moderator, Michael J. O’Donnell, a Partner at Morrison & Foerster LLP, presented a series of developing scenarios and asked for the panelists to respond. The all-star panel included:
- Corey Goodman, PhD, Managing Partner, venBio Partners
- Linda Grais, MD, former Chief Executive Officer, Ocera Therapeutics
- Nina Kjellson, General Partner, Canaan Partners
- Camille Samuels, Partner, Venrock
The hypothetical situation began with Linda, the CEO of the private biotech “Super Bio”, running into an old sorority sister who is now an Executive Vice President of Business Development at a major pharmaceutical company, “Big Pharma Co”. The old friend praises Super Bio and before they part ways she says, “In fact, we ought to buy you”. The panelist weigh whether Linda should tell her board, whom she has an informal call with the following day. They agree that there is no legal requirement to tell the board but believe it might be a good idea to mention it to the chairman.
Linda doesn’t mention the incident at all. The old friend then invites Linda to lunch, but asks her to keep it between themselves. The panelists agree that the bonds of sisterhood are not greater than the responsibility to the board and company, and Linda should accept the meeting but maybe only mention it to the chairman, in order to not distract the board from important budgeting issues they have on the table. Linda should also proceed “concerned and cautious” due to the old friend’s approach. They note the importance of a chairman or chairwoman, who can act as a “confidant and heatshield” to the CEO.
During the lunch, the friend states she’d like her company to buy Super Bio but she hasn’t discussed it internally and wants to hear from Linda first. She also mentions the advantages this would have for her personal career, and promises to take care of Linda if a deal were to happen. It is okay for Super Bio to say they are willing to entertain an offer, but it needs to be mentioned that the terms, the shareholder value, and the board’s opinion is what’s important. Corey Goodman, who has been on both sides of the aisle in his career, hones in on the friend’s intentions. Because she’s looking at this for personal gain, the board finds itself in a great position for leverage if her executive team buys in. The motive is very important to mention to the board.
The offer arrives at Super Bio’s door and instead of an acquisition they offer a licensing deal, some money upfront with milestones and royalty, a long binding lockup period, and preventing any sale of stock or license of assets or any negotiations related thereto. There were many issues with the initial offer, but in the words of Nina Kjellson, “A no shop is a no way”. The offer is rejected and Super Bio weighs hiring an investment bank. The negatives are possibly wasting time and money. The positives are the potential to have another suiter to help the valuation. The panel agrees do not hire an investment banker until a term sheet for an acquisition offer arrives.
Big Pharma Co.’s follow up offer is better, but leaves basically nothing for the common stockholders. The response to the offer will be based off of the management and board’s morale about their program. The panelists agree the employees being treated right is a non-negotiable, and it’s time to shop the offer. Camille Samuels explains a framework with reactive and proactive buyers, and low and high payers. The low payer has value in that they are a proactive buyer. At that point, you can leverage a proactive buyer for reactive buyers who are willing to pay more. If management wants to transact, this would be a good time to hire an investment banker.
During these events, Nina Kjellson recommends the board creating subcommittees for more efficient decision making and communication to ensure the ship continues to sail. Parse a few board members to the financing strategy, and others to the BD and transaction side. Put together a finite group of people within the company to put together the data room—a huge undertaking. Qualities to look for when putting together this sub team is organization, capability to hold the complexity of all of the different data, cross-functional, and good social skills to work with many people in the organization.
Kjellson advocates for the importance of running your company in an organized way from the jump. Goodman echoed her statement explaining, “This is where you discover how good your board is because if you start thinking about things the day you get the term sheet, you’re probably screwed.”
Access business panels, therapeutic sessions, and fireside chats from the 2018 Investor Forum by purchasing a Virtual Attendee Package here.