Avigen Inc (NASDAQ:AVGN) has discontinued its merger discussions and terminated its Chief Executive Officer and President, Kenneth Chahine, its Chief Business Officer, Michael Coffee, and its General Counsel, M. Christina Thomson, ahead of the special meeting of stockholders to be held today. Stockholders are to vote on BVF’s proposal to remove the board of AVGN and elect Biotechnology Value Fund’s (BVF) slate of director nominees. AVGN “intends to develop a plan of liquidation” following the special meeting if BVF’s nominees are not elected to the board, which now seems unlikely.
We’ve been following AVGN (see archived posts here) because it’s a net cash stock (i.e. it’s trading at less than the value of its cash after deducting all liabilities) and specialist biotechnology investor BVF has been pushing it to liquidate and return its cash to shareholders. MediciNova Inc (NASDAQ:MNOV) has made an offer for AVGN that we think represents a clever way for AVGN’s stockholders to receive cash equivalent to that which they would receive in a liquidation (less $7M to be paid to MNOV) with the possibility for “an extraordinary, uncapped return” if MNOV is successful post-merger. BVF has offered $1.20 for each share of AVGN, which is up from its initial offer of $1.00. The stock is up 81.5% from $0.65 to close at $1.18 yesterday. We estimate AVGN’s net cash value to be $37M or $1.24 per share (BVF estimates $1.20 per share). The net cash estimate does not take into account AVGN’s AV411 assets and program, which could be worth considerably more, perhaps as much as $5M to $20M or between $0.15 or $0.60 per share.
AVGN’s amended proxy filing sets out a series of discussions between AVGN and BVF leading up to yesterday’s announcement:
Later in the day on March 20, 2009, RBC contacted BVF with the intent to negotiate an increase in the Offer price to compensate the remaining stockholders for the value of Avigen’s AV411 assets and potential Genzyme milestone payments that Avigen believed were not reflected in the revised Offer price.
Over the weekend of March 20-22, 2009 Avigen’s advisors and BVF discussed a proposal by Avigen to work together to maximize stockholder value. Among other things, Avigen’s advisors proposed that Avigen would share with BVF for its consideration and input, following execution by BVF of an appropriate confidentiality agreement, the proposals received by Avigen relating to potential strategic transactions.
On March 23, 2009, BVF requested that Avigen have its counsel and financial advisors prepare an agreement between Avigen and BVF that would allow BVF to actively review and participate in negotiating the strategic proposals under consideration, including the proposal from MediciNova, to determine if Avigen and BVF could jointly agree on a proposal to present to stockholders for a vote, and with the other terms provided below, as well as the terms of a joint press release announcing these arrangements.
The draft agreement prepared on behalf of Avigen and submitted to BVF on March 24, 2009 provided that if the parties agreed on a strategic transaction, BVF would sign a tender and/or voting agreement in favor of the transaction recommended by the Board and presented to stockholders for approval. The draft agreement further provided that if no agreement for a strategic transaction were signed with a third party by May 8, 2009, Avigen would begin a formal liquidation process, with the goal of distributing at least $1.00 per Share to stockholders. Avigen’s obligations under the draft agreement were explicitly subject to a customary fiduciary out.
The draft agreement also provided that BVF would not modify its revised Offer of $1.20 per Share and that Avigen would reserve the right at any time during the process to terminate the Rights Agreement, support the revised Offer and support the BVF nominees, if the Board determined that such actions were in the best interests of stockholders.
On March 24, 2009, a representative of BVF stated to a representative of Avigen that it would not enter into the draft agreement.
On March 25, 2009, the Board met and reviewed Avigen’s alternatives, in light of BVF’s rejection of the draft agreement and the difficulty of obtaining stockholder approval for any strategic transaction without BVF’s support.
On March 26, 2009, Avigen issued a press release announcing the Board’s recommendation with respect to the revised Offer and the termination of the employment of certain corporate officers.
The AVGN press release is as follows:
Avigen Board Discontinues Strategic Merger Discussions to Develop a Plan for Liquidation
Avigen Board Neutral on Tender Offer
Alameda, CA, March 26, 2009 – Avigen, Inc. (Nasdaq: AVGN), a biopharmaceutical company, today announced that its Board of Directors has discontinued its strategic merger discussions and intends to develop a plan of liquidation following the special meeting of stockholders on March 27, 2009 if the BVF Nominees are not elected to the Board. The Board also announced that it reviewed the conditional offer from BVF Acquisition LLC and its affiliates to acquire all of the outstanding shares of Avigen. The Board, after a thorough review with management and its financial and legal advisors, is expressing no opinion and is remaining neutral with regard to the tender offer.
In taking a neutral stance on the tender offer, the Board noted the following:
* The Board believes that the offer price of $1.20 per share is approximately the company’s current net cash value less wind down costs, but does not reflect the value for the company’s other assets, including its AV411 pain and addiction program and rights to future payments from Genzyme Corporation.
* The Board recognizes the preference of some shareholders for immediate and certain liquidity.
* The Board believes it can deliver more than $1.20 per share from net cash assets less wind down costs, rights to approximately $6 million ($0.20 per share) of near-term Genzyme payments and the sale of AV411.
* BVF has stated that it intends to pursue a transaction with MediciNova, which the Board does not believe under the current terms would be in the best interests of stockholders.
“Based on the actions taken by BVF, Avigen’s Board believes its ability to pursue the strategic alternatives that the Board believes will increase stockholder value is all but foreclosed,” stated Zola Horovitz, Ph.D., Avigen’s Chairman of the Board. “Our Board has established a responsible pattern for dealing decisively with strategic issues, as demonstrated following the negative data from the company’s AV650 clinical trial in October 2008. While our Board considers the inability to continue its strategic process unfortunate, it has abandoned discussions for a strategic transaction and intends to develop a plan that will maximize liquidation value. As such, the Board determined that the company no longer needs to retain the services of the majority of its employees that were supporting strategic discussions and has reduced its headcount accordingly.”
The officers of the company included in the headcount reduction were Kenneth Chahine, Chief Executive Officer and President, Michael Coffee, Chief Business Officer, and M. Christina Thomson, General Counsel. Taking over as Chief Executive Officer and President is Andrew Sauter, the company’s Chief Financial Officer.
[Full Disclosure: We have a holding in AVGN. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]