Update on ABC Offer for ZYMEBy Jonathan Braude
May 05, 2022 09:24 AM
Dubai-based private equity investor All Blue Capital Ltd. is prepared to go hostile with its $733 million takeover offer for Canadian drug developer Zymeworks Inc. (ZYME), according to All Blue managing partner Matthew Novak, but is still urging the target to discuss its proposal and open its books for due diligence.
"We think there's value to be had," Novak told The Deal on Wednesday, May 4. "We have put together a team which is unparalleled. They are top-tier guys, oncologists, drug manufacturers; we’ve put together a good team to help monetize this asset.
"Yet shockingly the board has not engaged with us. You would think that they would. It’s their fiduciary duty to."
Novak said he would be prepared to go into a proxy battle but that would not be his preference and would be a long, drawn-out affair.
“Yet if they engage us there could be an arrangement, and we could be done and dusted in 30 days. The ball’s in their court,” he said.
Novak was speaking a week after writing a public letter to the Zymeworks' board announcing a nonbinding proposal to buy the company for $10.50 per share in cash, but also slamming what the missive described as "a number of serious missteps by an unfocused leadership with no clear strategy for improving performance."
All Blue holds about 5.44% of Vancouver, British Columbia- and Seattle-based Zymeworks through All Blue Falcons FZE.
The April 28 letter said there had been serious value erosion at Zymeworks, with the company's stock price "plummeting an astounding 87% since July 1, 2021," including a 67.81% decline since the appointment of Kenneth Galbraith as chairman and CEO on Jan. 5.
It expressed particular irritation at the Zymeworks board's decision to authorize a public share offering at $8 per share in January, calling it "a highly dilutive equity offering in current volatile market conditions," and said there were other available alternatives for raising capital.
"In addition, the below-market offering price seems to indicate the board’s own views as to the company’s value," it continued. "We have previously approached the board privately to express our concerns about this questionable decision, but unfortunately our communications seem to have fallen on deaf ears.
"As a significant investor in the company, we believe that Zymeworks stockholders deserve better than the consistent value destruction they have suffered during this relatively short period of time," the letter said.
All Blue said it was confident its all-cash proposal would not only deliver fair value to all stockholders but was better than it believed the company would be able to achieve on its current course. Taking Zymeworks private, it added, would allow existing shareholders to achieve an attractive premium and immediate liquidity.
"This is not an activist play,” Novak told The Deal. “I’m trying to buy all the shares in cash. This is an opportunity to create value. We see a company that has been mismanaged but with a valuable technology that we want to acquire for a fair market value.
"We’re here trying to provide value to shareholders, to be good stewards of a technology we believe in, and we have put together the right team to do it. We have money sitting ready to go which is not contingent on financing. But we’re facing an unresponsive board,” he said.
Zymeworks' only response so far came on April 28, the day All Blue's $10.50 per share proposal first emerged. Confirming the receipt of an unsolicited, nonbinding approach, it said it would carefully review the proposal to determine its best course of action, and that if a formal offer were to be made, it would be reviewed by the board and a formal recommendation to shareholders would be made in due course.
Zymeworks said its legal advisers are Blake, Cassels and Graydon LLP and Wilson Sonsini Goodrich & Rosati PC.
Although All Blue's private equity arm has historically been invested mainly in technology companies, including the likes of Alibaba Group Holding Ltd. (BABA), Space Exploration Technologies Corp. and Airbnb Inc. (ABNB), rather than biotechnology, it has had some minor interests in the sector.
Zymeworks has been on All Blue's radar for more than 10 years, although it did not invest in the company before it went public in New York in 2017. It first bought shares at an undisclosed date when Zymeworks was trading at around $40.
All Blue said separately Tuesday that it has brought in former AstraZeneca plc (AZN) vice president of clinical and head of oncology and infection Alan Barge as an adviser to help develop a business plan for Zymeworks. Barge is expected to serve on Zymeworks' board if the offer succeeds.
All Blue has engaged Goodmans LLP and Greenberg Traurig LLP as its legal counsel.