QLT shares perk up after news of bid to buy company

August 30, 2006
Vancouver Sun
By Gillian Shaw

Beleaguered shares in Vancouver’s QLT Inc. enjoyed a slight boost Tuesday following news of a bid to buy the company.

However, the approach that came this spring, according to reports on Tuesday, was rebuffed by QLT’s board in favour of a massive share buyback that expires Sept. 8.

Shares in the troubled drug developer closed Tuesday at $8.78 on the Toronto Stock Exchange, up 3.78 per cent from Monday’s close of $8.46.

Meanwhile, Rodney O’Connor, a major shareholder who has assembled a private equity group, said Tuesday his group remains interested pursuing an offer that he said would represent a better deal for shareholders than the current buyback.

“I put together a management group and approached private equity funds, and one offered to put up the capital to finance taking QLT private,” said O’Connor, who owns 500,000 shares in QLT that he acquired after the maker of eye treatments bought the company he co-founded, Atrix Laboratories, in 2004 in a $855-million US stock-and-cash deal.

“The letter was sent this last spring to the directors and management saying we would be very interested in doing this, that we had the capital and capabilities to pay a price substantially above the current market, and we needed to sign a confidentiality agreement and be able to examine the company more closely to make a firm offer.

“The company said they liked the business plan they have and the course they are on and would prefer to go their own way.”

Earlier this month, QLT announced a modified “Dutch auction” in which it would spend up to $104 million US to buy back shares. (The company reports in U.S. dollars.) If the tender is fully subscribed, the company would buy back 13 million shares, representing almost 15 per cent of the approximately 88.2 million shares outstanding as of July 26, the day before the offer was announced.

While Therese Hayes, QLT’s vice-president for investor relations and corporate communications, said the company doesn’t comment on preliminary indications of interest, she pointed to a paragraph in the proxy circular sent to shareholders regarding the buyback which made reference to unspecified indications of interest.

“In the past the company has received, and in the future it may receive, preliminary indications of interest to enter into business combinations or similar transactions that suggest a value per Share greater than the Purchase Price,” the circular reads.

“The board of directors has considered, and will consider, each overture it receives in the proper exercise of its legal duties.

“The company is not currently in any negotiations regarding such transactions.”

Hayes said the company has “never received anything with his name on it,” referring to O’Connor, but she declined to say whether the letter O’Connor referred to was received by QLT’s board under another firm’s name. O’Connor declined to name the private equity group that sent the letter.

The Atrix deal, which was championed by QLT’s former chief executive officer Paul Hastings, who left last September following a dispute with the board, failed to bolster the company’s lagging fortunes. QLT took a $410.5-million charge against the acquisition, and the company has hired an investment banker to sell Atrix’s generic dermatology and manufacturing assets, which have a book value in the mid $20-million range.

O’Connor blamed “lack of management” for the failure of the Atrix deal to deliver the anticipated results.
“We feel it was never properly integrated, the pipeline was never really exploited, and so we felt these things could be done, which the management didn’t do,” he said.

While O’Connor emphasized that there was never a firm offer on the table, he said his group wanted the opportunity under confidentiality agreements to “review the current operations of the company so that a firm and bona fide offer can be made.”

While there was no price cited, O’Connor said: “You have to make it a very attractive price for shareholders to allow you to take a company private. It certainly wasn’t $7 to $8 a share.”

O’Connor said the letter was not meant to be construed as a hostile takeover bid.

“This is supposedly friendly and hopefully more beneficial to the current stockholders, a friendly negotiated deal which would certainly give stockholders a better deal than the shares are current selling for,” he said.