sc14d9za
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14D-9
(Rule 14d-101)
Solicitation/Recommendation Statement Under Section 14(d)(4)
of the Securities Exchange Act of 1934
(Amendment No. 5)
KING PHARMACEUTICALS, INC.
(Name of Subject Company)
KING PHARMACEUTICALS, INC.
(Name of Person Filing Statement)
Common Stock, no par value per share
(Title of Class of Securities)
495582108
(CUSIP Number of Class of Securities)
Brian A. Markison
President and Chief Executive Officer
501 Fifth Street
Bristol, Tennessee 37620
(423) 989-8000
(Name, Address and Telephone Number of Person Authorized to Receive Notices and
Communications on Behalf of Person Filing Statement)
Copy to:
Scott F. Smith, Esq.
Jack S. Bodner, Esq.
Covington & Burling LLP
The New York Times Building
620 Eighth Avenue
New York, New York 10018
(212) 841-1000
o Check the box if the filing
relates solely to preliminary communications made before the commencement of a tender offer.
TABLE OF CONTENTS
This Amendment No. 5 (the Amendment) amends and supplements the
Solicitation/Recommendation Statement on Schedule 14D-9 initially filed on October 22, 2010, as
amended, by King Pharmaceuticals, Inc., a Tennessee corporation (King) (together with any
amendments and supplements thereto, the Schedule 14D-9). The Schedule 14D-9 relates to
the tender offer by Parker Tennessee Corp. (Acquisition Sub), a Tennessee corporation and
wholly owned subsidiary of Pfizer Inc., a Delaware corporation (Pfizer), pursuant to
which Acquisition Sub has offered to purchase all of the outstanding shares of common stock, no par
value per share, of King (the Shares) at a price of $14.25 per Share, net to the selling
shareholder in cash, without interest and less any required withholding taxes, upon the terms and
conditions set forth in the Offer to Purchase dated October 22, 2010 and the related Letter of
Transmittal, and described in the Tender Offer Statement on Schedule TO filed by Pfizer and
Acquisition Sub with the Securities and Exchange Commission (the SEC) on October 22,
2010, as amended.
Except as otherwise set forth below, the information set forth in the Schedule 14D-9 remains
unchanged and is incorporated herein by reference as relevant to the items in this Amendment.
Capitalized terms used but not otherwise defined herein have the meanings ascribed to such terms in
the Schedule 14D-9.
Item 4. The Solicitation or Recommendation.
Item 4 of the Schedule 14D-9 is hereby amended and supplemented by inserting the following on page
12 of the Schedule 14D-9 before the first full paragraph under the heading Background of the
Offer:
Kings Board and management have periodically reviewed and assessed different strategies for
enhancing shareholder value. On May 25, 2010, Kings Board held a meeting during which
representatives of Credit Suisse, financial advisor to King, and Kings management reviewed with
Kings Board certain strategic alternatives available to King, including, among others, remaining
an independent company and pursuing Kings strategic plan, commencing a stock buy-back program, the
potential acquisition, sale or spin-off of products or lines of business or pursuing a strategic
transaction with another party.
Item 4 of the Schedule 14D-9 is hereby amended and supplemented by inserting the following on page
12 of the Schedule 14D-9 after the first sentence in the second full paragraph under the heading
Background of the Offer:
Kings Board reached this conclusion, in part, due to the lack of any indication of price by
Pfizer that might have led Kings Board to grant Pfizer, subject to a confidentiality agreement
containing a standstill provision, access to due diligence material.
Item 4 of the Schedule 14D-9 is hereby amended and supplemented by amending and restating the
eleventh full paragraph under the heading Background of the Offer on page 13 of the Schedule
14D-9 as follows:
Between September 9, 2010 and September 16, 2010, at the direction of Kings Board, three
parties were contacted by representatives of Credit Suisse and one additional party was contacted
by Kings management in order to determine interest in a potential business combination transaction
with King, none of which resulted in a proposal. The four parties were chosen based on,
among other things, their position in the pharmaceutical industry and potential financial ability
to make an offer at or above the per Share price ranges previously indicated by Pfizer.
Item 4 of the Schedule 14D-9 is hereby amended and supplemented by amending and restating the
second full paragraph under the heading Opinion of Kings Financial Advisor Selected Public
Company Analysis on page 19 of the Schedule 14D-9 as follows:
Although none of the selected public companies is directly comparable to King, the companies
included were chosen because they are publicly traded companies in the specialty pharmaceuticals
industry that, for purposes of analysis, may be considered to have certain similar operations.
Item 4 of the Schedule 14D-9 is hereby amended and supplemented by amending and restating the third
full paragraph under the heading Opinion of Kings Financial Advisor Selected Public Company
Analysis on page 19 of the Schedule 14D-9 as follows:
Credit Suisse reviewed the enterprise value to last twelve months earnings before interest,
tax, depreciation and amortization (or EBITDA) multiples, as well as the estimated calendar year
(or CY) 2010 and 2011 enterprise value to EBITDA and price to earnings multiples of the selected
companies using closing stock prices as of October 8, 2010 and information it obtained from public
filings, publicly available research analyst estimates and other publicly available information.
The following are the multiples for each of the selected companies reviewed by Credit Suisse:
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Enterprise |
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Enterprise |
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Enterprise |
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Value / |
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Value / CY |
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Value / CY |
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Price / CY |
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Price / |
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LTM |
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2010E |
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2011E |
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2010E |
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CY2011E |
Company |
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EBITDA |
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EBITDA |
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EBITDA |
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Earnings |
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Earnings |
Warner Chilcott Plc |
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7.9x |
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7.4x |
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7.1x |
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6.5x |
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6.4x |
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Cephalon, Inc. |
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5.3x |
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5.3x |
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4.8x |
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8.4x |
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8.1x |
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Forest
Laboratories, Inc. |
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3.5x |
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3.7x |
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3.6x |
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8.2x |
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7.8x |
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Endo
Pharmaceuticals
Holdings Inc. |
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6.5x |
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6.1x |
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5.5x |
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10.3x |
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9.2x |
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Medicis
Pharmaceutical
Corporation |
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5.6x |
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5.5x |
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5.2x |
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11.5x |
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10.9x |
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Credit Suisse then applied the following ranges of enterprise value to estimated 2010 and 2011
EBITDA multiples, based upon its review of such multiples for King and the other selected public
companies, to corresponding financial data for King, using financial estimates provided by King
management.
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Enterprise Value/2010 EBITDA |
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Enterprise Value/2011 EBITDA |
5.0x to 6.0x
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4.75x to 5.50x |
The selected multiple ranges set forth above were chosen based on Credit Suisses experience
and judgment after reviewing the selected companies and their corresponding multiples taken as a
whole and do not reflect separate or quantifiable judgments regarding individual multiples or
companies.
Item 4 of the Schedule 14D-9 is hereby amended and supplemented by amending and restating the first
full paragraph under the heading Opinion of Kings Financial Advisor Selected Transaction
Analysis on page 20 of the Schedule 14D-9 as follows:
Credit Suisse reviewed certain transaction values and multiples in the following selected
publicly announced transactions, which involve companies with businesses in the specialty
pharmaceuticals industry (with a transaction enterprise value of over $1 billion):
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Announcement Date |
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Acquiror |
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Target |
06/21/10
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Valeant Pharmaceuticals International
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Biovail Corporation |
08/24/09
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Warner Chilcott Plc
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P&G Global Pharmaceuticals Business |
09/28/09
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Abbott Laboratories
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Solvay Pharmaceuticals Business |
09/03/09
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Dainippon Sumitomo Pharma Co., Ltd.
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Sepracor Inc. |
09/01/08
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Shionogi & Co., Ltd.
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Sciele Pharma, Inc. |
08/22/08
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King Pharmaceuticals, Inc.
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Alpharma Inc. |
11/29/07
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TPG Capital
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Axcan Pharma Inc. |
11/21/07
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GlaxoSmithKline Plc
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Reliant Pharmaceuticals Inc. |
11/06/06
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Abbott Laboratories
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Kos Pharmaceuticals, Inc. |
09/25/06
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UCB S.A.
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Schwarz Pharma AG |
09/21/06
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Nycomed
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ALTANA Pharma AG |
11/20/05
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Mentor Corporation*
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Medicis Pharmaceutical Corporation |
10/27/04
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DLJ Merchant Banking III, Inc. and
J.P. Morgan Partners, LLC
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Warner Chilcott Plc |
07/26/04
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Mylan Inc.*
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King Pharmaceuticals, Inc. |
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* |
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The transactions were not consummated. |
Item 4 of the Schedule 14D-9 is hereby amended and supplemented by amending and restating the
second full paragraph under the heading Opinion of Kings Financial Advisor Selected Transaction
Analysis on page 20 of the Schedule 14D-9 as follows:
While none of the selected transactions is directly comparable with the Offer and the Merger,
the selected transactions involve companies or divisions of companies with businesses in the
specialty pharmaceuticals industry that, for purposes of analysis, may be considered to have
certain similar operations as King.
Item 4 of the Schedule 14D-9 is hereby amended and supplemented by amending and restating the third
full paragraph under the heading Opinion of Kings Financial Advisor Selected Transaction
Analysis on page 20 of the Schedule 14D-9 as follows:
Credit Suisse reviewed, among other things, the enterprise value to last twelve month revenue
and EBITDA multiples implied by the selected transactions for each of the target companies involved
in the selected transactions based on publicly available financial information with respect to
those target companies. The enterprise value for each of the target companies was based on the
equity value of those target companies implied by the applicable transaction. The multiples for
each of the comparable transactions selected by Credit Suisse in its selected transaction analysis
are set forth below:
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Enterprise |
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Enterprise |
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Purchase |
Announcement |
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Purchase Price / |
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Price / LTM |
Date |
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Acquiror |
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Target |
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LTM Revenue |
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EBITDA |
06/21/10
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Valeant Pharmaceuticals
International
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Biovail Corporation
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3.4x
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6.9x |
08/24/09
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Warner Chilcott Plc
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P&G Global
Pharmaceuticals
Business
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1.3x
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3.3x |
09/28/09
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Abbott Laboratories
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Solvay
Pharmaceuticals
Business
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1.8x
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8.3x |
09/03/09
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Dainippon Sumitomo Pharma
Co., Ltd.
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Sepracor Inc.
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1.6x
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7.0x |
09/01/08
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Shionogi & Co., Ltd.
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Sciele Pharma, Inc
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3.1x
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12.0x |
08/22/08
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King Pharmaceuticals, Inc.
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Alpharma Inc.
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2.1x
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30.6x |
11/29/07
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TPG Capital
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Axcan Pharma Inc.
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2.9x
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8.1x |
11/21/07
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GlaxoSmithKline Plc
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Reliant
Pharmaceuticals
Inc.
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3.5x
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45.6x |
11/06/06
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Abbott Laboratories
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Kos
Pharmaceuticals,
Inc.
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4.3x
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21.3x |
09/25/06
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UCB S.A.
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Schwarz Pharma AG
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4.3x
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NM |
09/21/06
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Nycomed
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ALTANA Pharma AG
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1.8x
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6.3x |
11/20/05
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Mentor Corporation*
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Medicis
Pharmaceutical
Corporation
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5.1x
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12.9x |
10/27/04
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DLJ Merchant Banking III,
Inc. and J.P. Morgan
Partners, LLC
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Warner Chilcott Plc
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6.5x
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12.6x |
07/26/04
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Mylan Inc.*
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King
Pharmaceuticals,
Inc.
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2.9x
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7.1x |
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* |
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The transactions were not consummated. |
Based upon its review of multiples implied by the selected transactions, Credit Suisse then
applied a range of enterprise value to EBITDA multiples of 7.0x to 10.0x to Kings estimated 2010
EBITDA. The selected multiple ranges were chosen based on Credit Suisses experience and judgment
after reviewing the selected transactions and their corresponding multiples taken as a whole and do
not reflect separate or quantifiable judgments regarding
individual multiples or transactions. This analysis indicated the following implied per share
equity reference range for King as compared to the Per Share Consideration to be received by the
holders of Shares in the Offer and the Merger:
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Implied Per Share Equity Reference Range for King |
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Per Share Consideration |
$11.50 $15.50
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$ |
14.25" |
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Item 4 of the Schedule 14D-9 is hereby amended and supplemented by amending and restating the first
full paragraph under the heading Opinion of Kings Financial Advisor Discounted Cash Flow
Analysis beginning on page 20 of the Schedule 14D-9 as follows:
Credit Suisse performed a discounted cash flow analysis to calculate the estimated present
value of the unlevered after-tax free cash flows that King was forecasted to generate through 2015,
using projected financial information that was provided by Kings management.
Credit Suisse also calculated a range of estimated terminal values for King by applying a
range of enterprise value to EBITDA terminal multiples of 4.5x to 6.0x to Kings estimates for 2015
EBITDA. This range was selected by Credit Suisse based on the multiples of selected publicly
traded companies. The estimated free cash flows and terminal values were then discounted to
present value, as of June 30, 2010, using discount rates ranging from 8.5% to 10.5%, which range
was selected based on the Companys weighted average cost of capital calculations.
Item 4 of the Schedule 14D-9 is hereby amended and supplemented by amending and restating the
fourth sentence in the first full paragraph under the heading Opinion of Kings Financial Advisor
Miscellaneous beginning on page 21 of the Schedule 14D-9 as follows:
Pursuant to Kings engagement letter with Credit Suisse, Credit Suisse will be entitled to an
aggregate fee currently estimated to be approximately $22.1 million, $2.5 million of which became
payable in connection with the delivery of its opinion and a substantial portion of which is contingent upon, and will become
payable upon, consummation of the Offer.
Item 4 of the Schedule 14D-9 is hereby amended and supplemented by
amending and restating the last sentence in the first full paragraph under the
heading Financial Forecasts on page 22 of the Schedule 14D-9 as follows:
Kings management also provided the Financial Forecasts related to
net sales and non-GAAP operating income to Pfizer in connection with
Pfizers due diligence review of King.
Item 4 of the Schedule 14D-9 is hereby amended and supplemented by amending and restating the first
sentence in the second full paragraph under the heading Financial Forecasts of the
Schedule 14D-9 as follows:
The Financial Forecasts were not prepared with a view toward public disclosure, nor were they
prepared with a view toward compliance with published guidelines of the SEC, the guidelines
established by the American Institute of Certified Public Accountants for preparation and
presentation of financial forecasts, or, in the case of the Financial Forecasts related to
operating income or unlevered after tax free cash flows, generally accepted accounting principles
(GAAP).
Item 4 of the Schedule 14D-9 is hereby amended and supplemented by amending and restating
the fifth full paragraph under the heading Financial Forecasts of the Schedule 14D-9 as follows:
The Financial Forecasts related to non-GAAP operating income are financial
measures that have not been prepared in accordance with GAAP. Accordingly, the non-GAAP operating income Financial Forecasts should not be considered as a substitute for operating income prepared in accordance with GAAP. A reconciliation of the differences
between Kings non-GAAP operating income Financial Forecasts and such forecasts relating
to operating income prepared in accordance with GAAP, is set forth in the table below. King
did not provide the estimated GAAP adjustments to operating income (and did not provide
the related estimated GAAP operating income) or the estimated unlevered after tax free cash
flows, as set forth in the table below, to Pfizer in connection with Pfizers due diligence
review of King. Such unaudited prospective financial information has been provided by King
to Pfizer and Acquisition Sub solely in connection with the preparation of the Offer to Purchase.
Item 4 of the Schedule 14D-9 is hereby amended and supplemented by amending and restating the table
set forth under the heading Financial Forecasts of the Schedule 14D-9 as follows:
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Fiscal Year Ended December 31, |
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2010E |
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2011E |
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2012E |
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2013E |
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2014E |
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2015E |
Net Sales |
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$ |
1,485 |
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$ |
1,486 |
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$ |
1,667 |
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$ |
1,913 |
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$ |
2,247 |
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$ |
2,537 |
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Non-GAAP Operating Income |
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$ |
301 |
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$ |
175 |
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$ |
217 |
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$ |
325 |
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$ |
532 |
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$ |
714 |
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GAAP Adjustments* |
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$ |
(125 |
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$ |
(76 |
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$ |
(76 |
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$ |
(79 |
) |
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$ |
(79 |
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$ |
(82 |
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GAAP Operating Income |
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$ |
176 |
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$ |
99 |
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$ |
141 |
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$ |
246 |
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$ |
453 |
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$ |
632 |
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Unlevered After Tax Free Cash Flows** |
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$ |
249 |
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$ |
90 |
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$ |
127 |
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$ |
151 |
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$ |
292 |
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$ |
393 |
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* |
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Estimated GAAP adjustments to operating income include estimated amortization for the fiscal
years ending December 31, 2010 through 2015 and also include estimated restructuring charges and
net litigation settlements for the fiscal year ending December 31, 2010. |
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Unlevered after tax free cash flows are calculated as non-GAAP operating income, less
amortization expenses related to R&D milestone payments, less taxes plus depreciation and
amortization, less capital expenditures, less selected R&D milestone payments and less changes in
net working capital. |
Item 8. Additional Information.
Item 8 of the Schedule 14D-9 is hereby amended and supplemented by adding the following paragraph
immediately prior to the section entitled Cautionary Note Regarding King Forward-Looking
Statements:
On January 21, 2011, Acquisition Sub extended the expiration of the Offer until 5:00 p.m.,
New York City time, on Friday, January 28, 2011, unless further extended. The Offer, which was
previously scheduled to expire at 12:00 midnight, New York City time, on Friday, January 21, 2011,
was extended in accordance with the Merger Agreement because certain conditions to the Offer will
not be satisfied as of the previously scheduled expiration date, including the Regulatory Condition
(as defined in the Merger Agreement). American Stock Transfer & Trust Company, LLC, the depositary
for the Offer, has indicated that, as of the close of business on January 20, 2011, approximately
115,330,275 Shares had been validly tendered and not withdrawn pursuant to the Offer, representing
approximately 46.6% of the outstanding Shares. A copy of the press release issued by Pfizer
announcing the extension of the Offer is incorporated by reference to Exhibit (a)(5)(D) to
Amendment No. 5 to the Schedule TO filed by Pfizer on January 21, 2011 as Exhibit (a)(14)
hereto.
Item 8 of the Schedule 14D-9 is hereby further amended and supplemented by inserting the following
paragraph immediately prior to the section entitled Cautionary Note Regarding King Forward-Looking
Statements:
Agreements Restricting Competing Offers
King is not a party to an agreement with a third party that would preclude such third party
from making a competing offer to the Contemplated Transactions.
Item 9. Exhibits.
Item 9 of the Schedule 14D-9 is hereby amended and supplemented by adding the following
thereto:
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Exhibit |
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No. |
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Description |
(a)(14)
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Press Release issued by Pfizer Inc., dated January 21, 2011 (incorporated by
reference to Exhibit (a)(5)(D) to Amendment No. 5 to the Schedule TO filed by Pfizer Inc. on
January 21, 2011). |
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that the information
set forth in this statement is true, complete and correct.
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By: |
/s/ Brian A. Markison
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Name: |
Brian A. Markison |
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Title: |
President and Chief Executive Officer |
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Dated: January 21, 2011
EXHIBIT INDEX
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Exhibit |
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No. |
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Description |
(a)(14)
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Press Release issued by Pfizer Inc., dated January 21, 2011 (incorporated by
reference to Exhibit (a)(5)(D) to Amendment No. 5 to the Schedule TO filed by Pfizer Inc. on
January 21, 2011). |