Patheon Inc. to be Taken Private for US$9.32 per Share in Cash

Patheon Inc. has entered into an arrangement agreement ('Arrangement Agreement) with JLL/Delta Patheon Holdings, LP, a limited partnership ('Newco') under which Patheon would be taken private pursuant to a court-approved plan of arrangement (the 'Arrangement') under the Canada Business Corporations Act. 

Newco is sponsored by an entity controlled by JLL Partners, Inc. (JLL) and Koninklijke DSM NV (DSM). Affiliates of JLL currently own 55.7% of the restricted voting shares of Patheon and all of the outstanding class I preferred shares, series D of Patheon (the 'Preferred Shares').

The Arrangement Agreement contemplates that Newco will acquire, directly or indirectly, all of the restricted voting shares of Patheon, including those held by affiliates of JLL, for cash consideration of US$9.32 per share (Cash Consideration). In addition, all of the Preferred Shares will be purchased for nominal consideration and cancelled. The Cash Consideration will be paid in US dollars at closing, and is equivalent to approximately C$9.72 per share (based on the daily noon exchange rate of the Bank of Canada on18  November 2013). This represents a 64% premium to the closing price of the Restricted Voting Shares on 18 November 2013, a premium of 73% to the volume weighted average trading price of the Restricted Voting Shares on the TSX during the past 20 trading days, and a premium of 43% to the 52-week high (of C$6.80) of the Restricted Voting Shares on the TSX. The transaction provides total consideration to shareholders other than JLL affiliates of approximately US$582 million and implies an equity value for Patheon of approximately US$1.4 billion.

As part of the transaction, the limited partners of the JLL-affiliated investment fund that indirectly owns 55.7% of the Restricted Voting Shares will also receive the same Cash Consideration per Restricted Voting Share as is provided to the minority shareholders of Patheon. The transaction will result in Cash Consideration to all JLL affiliates of approximately US$732 million.  As part of the transaction, the general and limited partners of such investment fund will make indirect investments in Newco of approximately US$60 million and US$50 million, in aggregate, respectively.

On the closing of the transaction, the business of Patheon and DSM’s existing pharmaceutical products business will be combined to create a global leader in contract development and manufacturing services. The combined entity will be a company with anticipated 2014 annual sales of approximately US$2 billion (pro forma). Following completion of the transaction, Patheon’s Restricted Voting Shares will be de-listed from the TSX and no longer traded publicly.

The transaction has been approved unanimously by the Board of Directors of Patheon (with interested directors abstaining) following the report and unanimous favourable recommendation of a special committee of independent directors (Independent Committee). In so doing, both the Independent Committee and the Board of Directors of Patheon determined that the Arrangement is fair to holders of Restricted Voting Shares (other than affiliates of JLL and certain members of Patheon management) (the Minority Shares) and is in the best interests of Patheon. Both the Independent Committee and the Board of Directors recommend that minority shareholders vote in favour of the arrangement resolution at the special meeting of holders of Restricted Voting Shares to be held to approve the transaction (the Special Meeting).

The Board of Directors of Patheon established the Independent Committee — comprising Derek Watchorn, Brian Shaw and David Sutin — to, among other things, select an independent valuator, supervise the preparation of a formal valuation of the Restricted Voting Shares, and negotiate the terms of the Arrangement on behalf of Patheon. The Independent Committee engaged BMO Capital Markets as independent valuator, and RBC Capital Markets as financial advisor and was advised by Blake, Cassels & Graydon LLP, as independent legal advisor.

Derek Watchorn, Chairman of the Independent Committee, stated: “The transaction delivers liquidity to our shareholders at a substantial premium to the market price of Patheon’s Restricted Voting Shares and is supported by fairness opinions received from BMO Capital Markets and RBC Capital Markets. We recommend that minority shareholders vote in favour of the arrangement at the special meeting that will be called to approve the transaction.”