Description

Synaptic (SNAP), a biotechnology company is being acquired by Danish drugmaker H. Lundbeck for $6.50 cash per share. Synaptic provides Lundbeck with strategic research and a U.S. base for research and development. The definitive agreement was signed on November 21, 2002 followed by the preliminary proxy on December 11, 2002. This appears to be a solid deal with the market assessing about a 95% probability that the sale will go through. Correspondingly, at $6.35, the spread is pretty thin at 2.4%. However, last week the spread widened as the stock price dropped to as low as $6.16 or a 5.5% spread. There?s reasonable liquidity and I suggest that VIC members place orders for the corresponding return that you expect to receive. At $6.35 (accounting for ½ cent frictional costs), if the deal pays out in three months you?ll get a 9% annual return.

Lundbeck produces over $1 billion (U.S.) dollars in revenue thanks to their recent blockbuster anti-depression drug, Celexa. Financing the deal is a non-issue as Lundbeck had $117 million in cash as of June 30th, 2002 and the transaction is not conditioned on obtaining financing. The total cost of the deal is approximately $122 million. Warburg Pincus who owns 35% of the outstanding shares has agreed to vote for the sale. The major conditions of this deal are shareholder approval and expiration or termination of the applicable waiting period under the HSR Act and the obtaining of any necessary consents or approvals required to consummate the merger under any applicable foreign competition law.

The ?dance? between Lundbeck and Synaptic began back in April 2002. In August a confidentiality agreement was signed between the two companies and then in September Lundbeck sent a non-binding letter of intent to purchase 100% of Synaptic for $6.50 per share. Due diligence followed in October and then another letter from Lundbeck was received by Synaptic in November expressing continued interest in purchasing the company. The definitive merger agreement was signed on November 21, 2002.

Lastly, the timing of the deal works out well, as profit proceeds will be able to be reinvested for the majority of 2003 before having to pay taxes.

Catalyst

Shareholder vote and approval prior to April 30th 2003.