DealLawyers.com Blog

It’s been a long time since we’ve seen a deal jumping attempt as brazen – or as high stakes – as the one that Novo Nordisk is trying to pull off with the pending deal between Pfizer and Metsera. The first thing that’s pretty wild about Novo Nordisk’s move is the structure of its proposal. Here’s an excerpt from Metsera’s 8-K filing describing the terms of Novo Nordisk’s proposed deal:

The Novo Nordisk Proposal is structured in two steps (together, the “Novo Nordisk Transaction”). In the first step, promptly following the signing of the Novo Transaction Agreements (as defined below), a Novo Nordisk subsidiary would pay to Metsera an amount equal to $56.50 per Metsera common share in cash as well as certain amounts in respect of Metsera employee equity and transaction expenses. In exchange, Metsera would issue Novo Nordisk shares of non-voting convertible preferred stock (the “Non-Voting Convertible Preferred Stock”) representing, in the aggregate, 50% of Metsera’s fully-diluted share capital on a post issuance basis. On the same day, Metsera would declare a dividend of $56.50 per Metsera common share, in cash, with a record date ten days following the signing of the Novo Merger Agreement with payment to follow in the days shortly thereafter.

In the second step, which would happen only after receiving approval from Metsera shareholders and relevant regulators as well as the satisfaction of other customary conditions, holders of Metsera common stock and certain employee equity awards would receive one contingent value right (“CVR”) per Metsera common share, subject to certain exceptions, representing the right to receive up to $21.25 in cash based on the achievement of certain development and regulatory approval milestones as described further below (which are substantially the same as those that would be issued in connection with the Pfizer Merger Agreement), and Novo Nordisk would acquire the remainder of the outstanding shares of Metsera via a merger of Metsera with and into a subsidiary of Novo Nordisk.

That non-voting preferred stock would be convertible into common stock to the extent permitted by law, and would rank on a par with Metsera’s common stock on an as-converted basis when it comes to dividends and liquidation rights. In addition, the preferred would convert into common in connection with any transfer of the shares to a non-affiliate of Novo Nordisk.

There are restrictions on transfer of the preferred stock to non-affiliates prior to termination of a merger agreement between Metsera and Novo Nordisk. Those restrictions lapse over a two-year period following such termination. The preferred stock also has the right to force a redemption during the three-year period following termination of the merger agreement in connection with a topping bid or a subsequent acquisition transaction.

Not surprisingly, Pfizer is crapping all over Novo Nordisk’s bid. Here’s an excerpt from its press release responding to the proposal:

Pfizer Inc. (NYSE: PFE) is aware of the reckless and unprecedented proposal by Novo Nordisk A/S (NYSE: NVO) to acquire Metsera, Inc. (NASDAQ: MTSR). It is an attempt by a company with a dominant market position to suppress competition in violation of law by taking over an emerging American challenger. It is also structured in a way to circumvent antitrust laws and carries substantial regulatory and executional risk. The proposal is illusory and cannot qualify as a superior proposal under Pfizer’s agreement with Metsera, and Pfizer is prepared to pursue all legal avenues to enforce its rights under its agreement.

On Friday, Pfizer put its money where its mouth is and filed a lawsuit against Metsera, its board, and Novo Nordisk alleging breaches of the merger agreement and tortious interference.

Metsera’s board apparently disagrees with Pfizer’s assessment and has informed Pfizer that it believes Novo Nordisk’s bid represents a “Superior Company Proposal” under the terms of its merger agreement. Your mileage may vary on the competing assessments of whether Novo Nordisk has submitted a Superior Company Proposal, but if you’re interested, that term is defined in Section 5.02(h) of the merger agreement.  Here’s the WSJ’s take on the Superior Company Proposal issue, which notes that Metsera previously rejected a similarly structured proposal from Novo Nordisk:

If Novo’s bid is truly superior, why didn’t Metsera accept a similar one the first time? Why did the Metsera board, as the proxy statement shows, prod Pfizer to sweeten its deal? Under the merger agreement, the definition of “Superior Company Proposal” refers to a weighing of not just price but also regulatory, financing, timing, and legal risks. While shareholders might get more money under Novo’s proposal, Pfizer’s argument that Metsera can’t pay out the dividend under Delaware law and Pfizer’s request for a temporary restraining order to block the merger’s termination already have made Novo’s offer, in essence, riskier.

Pfizer’s press release also pushed all the buttons necessary to attract the attention of antitrust regulators, and its argument that Novo Nordisk has structured its bid to “circumvent antitrust laws” has received some attention from Ann Lipton in a LinkedIn post. There, she points out that Toshiba and Canon got into antitrust trouble a few years ago by using a non-voting preferred stock deal structure to, according to the FTC & DOJ, evade HSR filing requirements.

Section 5.02(e) of the merger agreement gives Pfizer match rights during the four-day period following receipt of notice from Metsera that a Superior Company Proposal has been received, and with Pfizer already throwing punches, it looks like there are going to be several more twists and turns to this transaction before the dust settles. So, sit back and make some popcorn – but since this fight is all about obesity drugs, maybe use the air popper & leave out the butter.

– John Jenkins