Cornerstone Therapeutics of Cary sets Jan. 31 shareholder vote on proposed merger

Posted by John Murawski on December 26, 2013 

Cornerstone Therapeutics, a Cary drug developer, has set a Jan. 31 shareholder vote on its proposed merger with Italy’s Chiesi Farmaceutici, according to a public disclosure filed Thursday that chronicles the two business partners’ six-month merger talks, near-walkouts and last-minute truce.

The deal with Chiesi, which values Cornerstone at nearly $300 million, will end the Cary company’s 5-year run as a publicly-traded company, turning Cornerstone into a Chiesi subsidiary. It requires two shareholder votes, as well as a non-binding shareholder recommendation on multimillion-dollar payouts to Cornerstone officials.

The merger faces four shareholder class action lawsuits that accuse Cornerstone officials of selling out Cornerstone stock holders. In its filing with the Securities and Exchange Commission, Cornerstone said it negotiated under a power imbalance that authorized Chiesi to unilaterally replace Cornerstone’s negotiators.

Chiesi, which owns a majority of Cornerstone shares, originally offered $6.40 to $6.70 per share to acquire Cornerstone in February, but the Cary company rebuffed its dominant shareholder with a counteroffer of $11 per share.

Cornerstone appointed a special merger committee comprising five people unaffiliated with either company to represent its shareholders, giving the negotiators power to hire their own lawyers and financial advisors. The special committee, which met 37 times in person or by phone to hammer out a deal with Chiesi, said Chiesi’s power to fire them did not intimidate them, according to the filing.

At one point, in August, the special committee was prepared to issue a press release to say the merger talks had fallen through. Ultimately, as Cornerstone’s negotiating position eroded month by month, the parties agreed to $9.50 a share in September.

Cornerstone had its hands tied as far as other suitors were concerned, because Chiesi refused to sell its Cornerstone shares to any other buyers. Chiesi owns 58 percent of Cornerstone, with an option to buy more shares for a total equity stake of 64 percent.

The special committee members were paid $70,00 for their six months of service, with the chairman receiving $102,500.

The two sides disagreed about Cornerstone’s financial prospects, with the Cary company predicting about $285 million in revenue by 2022, and Chiesi projecting $162.5 million for its takeover target.

Chiesi estimates that completing the merger will cost $1.8 million.

Cornerstone executives are eligible for payouts totaling about $4.5 million, with half going to chief executive Craig Collard.

In what is likely one of Cornerstone’s last regulatory filings, the company estimates it will save $1.4 million a year just from not having to make financial disclosures or other actions related being a publicly-traded company.

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