American Medical Systems Holdings, Inc. (“AMS” or the “Company”) (NASDAQ: AMMD) announced that it had
signed a memorandum of understanding today to settle the previously
disclosed, putative class action lawsuits captioned Walker v. Bihl,
et al., and Prime Investors Fund v. Bihl, et al., respectively,
filed in the Hennepin County District Court on April 29, 2011 and
May 5, 2011, respectively (collectively, the “Merger Litigation”). The Merger Litigation relates
to the Agreement and Plan of Merger, dated as of April 10, 2011, by
and among Endo Pharmaceuticals Holdings Inc. (“Endo”), NIKA Merger Sub, Inc., a wholly owned
indirect subsidiary of Endo, and AMS.
The Company agreed to the memorandum of understanding solely to
avoid the costs, risks and uncertainties inherent in litigation,
and without admitting any liability or wrongdoing. The other
defendants and all plaintiffs in the Merger Litigation are parties
to the memorandum of understanding , which provides, among other
things, that the parties will seek to enter into a stipulation of
settlement which provides for the release of all asserted claims.
The asserted claims will not be released until such stipulation of
settlement is approved by the court. There can be no assurance that
the parties will ultimately enter into a stipulation of settlement
or that the court will approve such settlement even if the parties
were to enter into such stipulation. Additionally, as part of the
memorandum of understanding, AMS has agreed to make certain
additional disclosures related to the proposed merger, which are
set forth below. Finally, in connection with the proposed
settlement, plaintiffs intend to seek, and the defendants have
agreed to pay, an award of attorneys fees and expenses in an amount
to be determined by the Hennepin County District Court. This
payment will not affect the amount of merger consideration to be
paid in the merger or the timing of the special meeting of AMS
stockholders scheduled for June 15, 2011 in Minnetonka,
Minnesota.
The additional disclosures in this press release supplement the
disclosure contained in the definitive proxy statement of AMS filed
with the Securities and Exchange Commission (“SEC”) on May 10, 2011 and mailed to AMS’s
stockholders on or about May 11, 2011 (the “Proxy Statement”), and should be read in
conjunction with the disclosures contained in the Proxy Statement,
which in turn should be read in its entirety. To the extent that
information in this press release differs from or updates
information contained in the Proxy Statement, the information in
this press release shall supersede or supplement the information in
the Proxy Statement. Nothing in this press release, the memorandum
of understanding or any stipulation of settlement shall be deemed
an admission of the legal necessity or materiality of any of the
disclosures set forth herein. Capitalized terms used herein, but
not otherwise defined, shall have the meanings ascribed to such
terms in the Proxy Statement.
The following additional disclosures supplement the existing
disclosures contained under the caption “Background of the Merger”
beginning on page 18 of the Proxy Statement:
- In late 2009, Endo sent AMS a written
indication of interest in acquiring AMS at a price of $23.00 per
share of AMS common stock in a mix of approximately 75% cash and
25% stock, subject to a 60-day exclusivity period and certain other
conditions. This written indication of interest also stated that
Endo was prepared to work with AMS to ensure that key members of
the AMS team would be fully motivated to contribute to the future
success of the combined company in the event that Endo acquired
AMS.
- In July 2010, AMS’s board of directors
held a regular meeting in Minnesota. At this meeting, AMS’s
management and board of directors discussed the Company’s long
range strategic plan, its cash and debt balances, the expected
repayment of its senior secured credit facility, its capital
structure, potential investment opportunities, potential new
products, the possibility of redeeming its 3¼% Convertible Senior
Subordinated Notes due 2036 and various other strategic
alternatives.
- In 2010, AMS repaid its outstanding
term loan balance of $125.3 million on its senior secured credit
facility, as previously disclosed in AMS’s public filings with the
SEC.
- In a presentation to AMS’s board of
directors on February 1, 2011, J.P. Morgan included a preliminary
list of potential buyers that were prioritized based on, among
other things, such parties’ historical acquisition activity, the
Company’s strategic fit within such parties’ businesses, and such
parties’ ability to complete a transaction. After discussions with
AMS’s board of directors, management and counsel to the Company
regarding competitive dynamics, regulatory considerations and
execution risk with respect to such parties, the Company and J.P.
Morgan refined the prioritization, including moving two potential
buyers from Tier 1 to Tier 2 in the prioritization, and this
revised list was included in J.P. Morgan’s March 1 presentation to
AMS’s board of directors.
- On February 16, 2011, upon the
recommendation of AMS’s management and with the support of AMS’s
board of directors, AMS entered into an engagement letter that was
negotiated by AMS’s management for J.P. Morgan to act as financial
advisor for a potential sale of the Company. The Company did not
formally interview potential financial advisors, and instead chose
J.P. Morgan based on its experience working with the Company and
its reputation and experience in the industry.
- On February 25, 2011, AMS’s board of
directors held a special telephonic meeting and determined not to
engage in discussions with other potential purchasers until
discussions with Endo had developed further because the board of
directors had not yet determined that further discussions with Endo
would be likely to lead to a sale of the Company.
- On March 28, 2011, a medical device
manufacturer, which is referred to in the Proxy Statement as Bidder
B, contacted J.P. Morgan and expressed a potential interest in
acquiring AMS. Bidder B had not previously been reviewed with AMS’s
board of directors as a potential strategic partner for the
Company.
- On April 5, 2011, Endo informed Mr.
Bihl that Endo would like him to enter into a new employment
agreement with Endo in the event that Endo and AMS entered into a
definitive merger agreement, and asked Mr. Bihl for permission to
send him a draft employment agreement as soon as possible. Mr. Bihl
responded that he would not entertain any employment offers until
Endo and AMS had reached agreement on the key terms of the
potential merger, including the price that Endo would pay to
acquire AMS. Mr. Bihl further indicated that if and when the key
terms had been agreed upon, he would be willing to work with Endo
to negotiate a mutually acceptable employment agreement that would
be executed concurrent with a definitive merger agreement. Mr. Bihl
informed AMS’s lead independent director, Albert Jay Graf, about
Endo’s communications to him regarding his potential employment. In
addition, in the evening of April 7, 2011, during a special
telephonic meeting of the board of directors, Mr. Bihl informed the
full board of these communications. On April 8, 2011, after AMS and
Endo had reached agreement on the price of $30.00 per share of
common stock in cash and the key terms and conditions of the merger
agreement, Endo provided Mr. Bihl with an initial draft of a
proposed employment agreement between Mr. Bihl and Endo that would
take effect upon completion of the merger. The draft employment
agreement included a proposal, upon completion of the merger, to
grant Mr. Bihl restricted shares of Endo common stock and an option
to purchase additional shares of Endo common stock which would vest
over time.
The following additional disclosures supplement the existing
disclosures contained under the caption “Opinion of J.P. Morgan
Securities LLC” beginning on page 26 of the Proxy Statement:
- J.P. Morgan calculated the Company’s
equity value per share implied by certain reference ranges of
multiples, which were based on the ranges of multiples calculated
in the chart above for comparable companies but adjusted to take
into account differences between the Company and the comparable
companies and such other factors as J.P. Morgan deemed appropriate,
including but not limited to revenue and earnings per share growth,
based upon J.P. Morgan’s experience and expertise in conducting
similar types of analyses as well as its experience and
understanding of the industry and the Company.
- J.P. Morgan conducted a discounted cash
flow analysis for the purpose of determining the fully diluted
equity value per share of the Company’s common stock. J.P. Morgan
calculated the unlevered free cash flows that the Company is
expected to generate during fiscal years 2011 through 2020, based
upon financial projections prepared by the management of the
Company which included the Financial Forecasts for the years 2011
to 2015. J.P. Morgan then calculated the terminal value of the
Company as of December 31, 2020 by applying, based upon J.P.
Morgan’s judgment and professional experience in conducting similar
types of analyses, a range of perpetual growth rates from 2.5% to
3.5%. The unlevered free cash flows from April 8, 2011 through
December 31, 2020 and the range of terminal asset values were then
discounted to present values using a range of discount rates from
10.0% to 11.0% and added together in order to derive the implied
Firm Value of the Company. The discount rate range was determined
by J.P. Morgan, based upon its judgment and professional experience
in conducting similar types of analyses, after its analysis of the
weighted average cost of capital of the company, and applied using
the midyear convention for discounting. In calculating the
estimated diluted equity value per share, J.P. Morgan adjusted the
firm value for the Company’s excess cash and total debt as of
December 31, 2010 and divided by the fully diluted shares
outstanding of the Company. Based on the foregoing, the analysis
indicated an implied equity value per share of the common stock of
$25.00 to $30.75 per share. All values presented were rounded to
the nearest $0.25. In each case, J.P. Morgan compared implied
equity values per share to the per share consideration of $30.00 in
cash to be paid to the holders of the Company’s common stock in the
merger and the $22.33 per share closing price of the common stock
as of April 8, 2011.
- During the two years preceding the date
of J.P. Morgan’s fairness opinion, J.P. Morgan and its affiliates
have had commercial or investment banking relationships with the
Company and Endo, for which J.P. Morgan and its affiliates have
received customary compensation. Such services during such period
have included acting as joint bookrunning manager on Endo’s
$400,000,000 senior notes offering in November 2010 and acting as
joint bookrunners and joint lead arrangers on Endo’s $400,000,000
Term Loan A and $500,000,000 Revolving Credit Facility in November
2010, for which J.P. Morgan and its affiliates received fees not
exceeding more than $10,000,000 in the aggregate.
The following additional disclosures supplement the existing
disclosures contained under the caption “Certain Financial
Forecasts” beginning on page 31 of the Proxy Statement:
- As part of its annual strategic
planning process, AMS prepares certain limited internal financial
analyses and forecasts regarding AMS’s possible future operations
for a five year period. These analyses and forecasts are subject to
the input and oversight of AMS’s Chief Financial Officer and Chief
Executive Officer, and are approved by AMS’s board of directors.
The analyses and forecasts that are referred to in the Proxy
Statement as the “Financial Forecasts” were prepared with the same
input, oversight and approval.
- The financial projections below were
based on the Financial Forecasts and were utilized by J.P. Morgan
as part of its discounted cash flow analysis. These financial
projections were not provided to Endo or any person other than J.P.
Morgan and AMS’s board of directors. All amounts are expressed in
millions of dollars.
2011 2012
2013 2014
2015 2016
2017 2018
2019 2020 Total Revenue $
587 $ 646 $ 721 $ 807 $ 907 $
998 $ 1,078 $ 1,142 $ 1,188 $ 1,224 Gross profit 491 537 600
673 758 834 900 955 993 1,023 Operating expenses 318 354 394 436
488 535 577 611 635 635 Earnings before interest, taxes,
depreciation and amortization 195 204 229 259 294 324 349 369 383
412 Free cash flow $ 111 $ 121 $ 144 $ 158 $ 186 $ 206 $ 225 $ 240
$ 252 $ 273
The financial projections in the table above
were not prepared in the ordinary course and were not subject to
the same input, oversight or approval processes that were used to
create the Financial Forecasts. Although presented with numerical
specificity, the financial projections are not actual facts and
reflect numerous assumptions, estimates and judgments as to future
events. The assumptions and estimates underlying the financial
projections may not be realized and are inherently subject to
significant business, economic and competitive uncertainties and
contingencies. The assumptions and estimates used to create the
financial projections involve judgments made with respect to, among
other things, future pricing, cost of goods sold, selling and
marketing expenses, research and development spending, impending
U.S. healthcare tax, AMS’s costs of financing, AMS’s senior
secured credit facility, AMS’s convertible notes, prevailing
interest rates and income tax rates, many of which are difficult to
predict and some of which are outside of AMS’s control. The
financial projections also reflect assumptions as to certain
business decisions that do not reflect any of the effects of the
merger or any other changes that may in the future affect AMS or
AMS’s assets, business, operations, properties, policies, corporate
structure, capitalization and management as a result of the merger
or otherwise. Accordingly, there can be no assurance that the
assumptions and estimates used to prepare the financial projections
will prove to be accurate, and actual results may materially
differ.
The inclusion of the financial projections in
this press release should not be regarded as an indication that
AMS, Endo or any of their respective advisors or representatives
considered or consider the financial projections to be an accurate
prediction of future events, and the financial projections should
not be relied upon as such. None of AMS, Endo or any of their
respective advisors or representatives has made or makes any
representation regarding the information contained in the financial
projections, and except as may be required by applicable securities
laws, none of them intend to update or otherwise revise or
reconcile the financial projections to reflect circumstances
existing after the date such financial projections were generated
or to reflect the occurrence of future events even in the event
that any or all of the assumptions underlying the financial
projections are shown to be in error.
AMS’ stockholders are cautioned not to
place undue reliance on the financial projections included in this
press release, and such projected financial information
should not be regarded as an indication that AMS, AMS’s board of
directors, J.P. Morgan, Endo or any other person
considered, or now considers, them to be reliable
predictions of future results, and they should not be relied upon
as such.
The financial projections should be read
together with the historical financial statements of AMS, which
have been filed with the SEC, and the other information regarding
AMS contained in the Proxy Statement. None of the financial
projections were prepared with a view toward public disclosure, nor
were they prepared with a view toward compliance with the published
guidelines of the SEC or the guidelines established by the American
Institute of Certified Public Accountants for preparation and
presentation of prospective financial information. Neither AMS’s
independent auditors, nor any other independent accountants
(including, without limitation, Endo’s), have compiled, examined,
or performed any procedures with respect to the prospective
financial information contained herein, nor have they expressed any
opinion or any other form of assurance on such information or its
achievability, and assume no responsibility for, and disclaim any
association with, the prospective financial information. The report
of AMS’ independent registered public accounting firm included in
AMS’ Annual Report on Form 10-K for the year ended
January 1, 2011 relates to AMS’ historical financial
information. It does not extend to the financial projections and
should not be read to do so.
About American Medical Systems Holdings, Inc.
American Medical Systems, headquartered in Minnetonka,
Minnesota, is a diversified supplier of medical devices and
procedures to treat incontinence, erectile dysfunction, benign
prostatic hyperplasia (BPH), pelvic floor prolapse and other pelvic
disorders in men and women. These disorders can significantly
diminish one's quality of life and profoundly affect social
relationships. In recent years, the number of people seeking
treatment has increased markedly as a result of longer lives,
higher-quality-of-life expectations and greater awareness of new
treatment alternatives. American Medical Systems' products reduce
or eliminate the incapacitating effects of these diseases, often
through minimally invasive therapies. The Company’s products were
used to treat approximately 340,000 patients in 2010.
Forward-Looking Statements
This press release contains forward-looking statements relating
to, among other things, the proposed business combination between
Endo and AMS, the Merger Litigation and its potential settlement
and financial projections relating to AMS’s future total revenue,
gross profit, operating expenses, earnings before interest, taxes,
depreciation and amortization and free cash flows. These statements
and other statements contained in this press release that are not
purely historical fact are forward-looking statements, within the
meaning of the Private Securities Litigation Reform Act of 1995,
that are based on management's beliefs, certain assumptions and
current expectations. Actual results may differ materially from
anticipated results. The forward-looking statements contained in
this press release are made as of the date hereof, and AMS
undertakes no obligation to update any forward-looking statements
to reflect events or circumstances after the date on which any such
statement is made or to reflect the occurrence of unanticipated
events. Additional information concerning AMS’s risk factors may be
found in AMS’s public periodic filings with the Securities and
Exchange Commission (“SEC”), including the discussion under the
heading “Risk Factors” in AMS’s Annual Report on Form 10-K for the
year ended January 2, 2011, filed with the SEC on February 25,
2011, and its Quarterly Report on Form 10-Q for the quarter ended
April 2, 2011, filed with the SEC on May 12, 2011.
Additional Information and Where to Find It
AMS has filed with the SEC, and sent to its stockholders, a
proxy statement in connection with the proposed merger with Endo.
The proxy statement contains important information about the
proposed merger and related matters. AMS STOCKHOLDERS ARE URGED TO
READ THE PROXY STATEMENT CAREFULLY. AMS stockholders can obtain
free copies of the proxy statement and other documents filed with
the SEC by AMS through the web site maintained by the SEC at
www.sec.gov. In addition, security holders can obtain free copies
of the proxy statement from AMS by contacting Investor Relations by
telephone at (952) 930-6000, or by mail at American Medical Systems
Holdings, Inc., 10700 Bren Road West, Minnetonka, Minnesota 55343,
Attention: Investor Relations Department, or by going to AMS’s
Investor Relations page on its corporate web site at
www.americanmedicalsystems.com.
AMS, its directors and executive officers, and Mackenzie
Partners, Inc. may be deemed to be participants in the solicitation
of proxies from the stockholders of AMS in connection with the
proposed merger. Information regarding the interests of these
directors and executive officers in the transaction described
herein is included in the proxy statement described above.
Additional information regarding these directors and executive
officers is included in AMS’s proxy statement for its 2011 Annual
Meeting of Stockholders, which was filed with the SEC on March 30,
2011.
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