CPEX vote down to the wire


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In the last two weeks, CPEX Pharmaceuticals shareholders have been bombarded with offers, rejections, dueling reports and some name-calling as they prepare to vote Thursday on whether to sell the alternative drug delivery firm to a subsidiary of a bankrupt shoe company.

The Exeter-based company's management, which controls about a fifth of the shares, has been steadfast in support of FCB I Holdings Inc.'s $77 million offer ($27.25 a share), a 142 percent premium over the price the company was selling at before the merger was announced in January and about twice the price it was selling for when it was spun off from Bentley Pharmaceuticals in 2008.

One of the reasons CPEX was able to strike such a deal was because it was able to carry forward the losses of FCB I parent company Footstar, which is emerging from Chapter 11 bankruptcy.

But at least a tenth of the shareholders oppose the sale - led by Mangrove Partners, which argues that shareholders would receive more with a special dividend and still be able to keep their stock.

On March 11, two proxy analysts weighed in on the matter with differing opinions. CPEX touted ISS Proxy Advisory Services, which recommended that shareholders vote for the proxy, arguing that the all-cash consideration brings "certainty of value" while the dividend strategy brings a variety "execution, tax, litigation and competitive risks."

Mangrove pointed to Glass Lewis and Co., which recommended voting no on the proxy, saying "our analyses suggest the per-share price offered by Footstar and its affiliates falls well short of the value shareholders might reasonably expect in exchange for forfeiting their interest in what amounts to a long-lived annuity"

Mangrove then put what looked like a solid offer on the table on March 14, saying that it would be able to raise $85.3 million in financing. It would use the money to pay shareholders a dividend of some $28 a share, based on the royalties of the company's only product - Testim, a testosterone gel. Shareholders also would get to hold on to their shares in the recapitalized company, which would bring the total share value to $34.73.

Mangrove revised its proposal two days later, reducing its number of finance partners from seven to five, saying that it hoped that the simpler proposal would win over CPEX management.

If the "CPEX board returned just one of Mangrove's many phone calls it would lead to a negotiated agreement delivering a superior outcome to stockholders," said Mangrove in a letter.

In another letter it emphasized that it did not seek control of the board, or ouster of its management.

But CPEX said the change "confirms the board's belief that the proposal is highly suspect."

It said that the special dividend would actually amount to $2.30 a share less than predicted, bringing the price below FCB's cash offer. It also said the valuation of the stock after the recapitalization was "overly optimistic" and short on cash. The board has, it said, "determined not to engage in discussions with Mangrove."

On Monday, in its last-ditch effort to defeat the proposal, Mangrove expressed its "disappointment" that "CPEX board and management are only truly committed to their over $7 million in change-of-control payments" that would come with a sale of the company. "Unfortunately, management's myopic focus on capturing their enormous change of control payments has resulted in the Board rejecting our proposal out of hand without even bothering to ask us a single question or enter into negotiations."

CPEX, however, defended its recommendation as a result of "an exhaustive eight-month review process during which the CPEX board - which consists of four independent directors out of a total of five - considered all strategic options to maximize value for stockholders."

Thursday's special meeting will take place in Boston. -- BOB SANDERS/NEW HAMPSHIRE BUSINESS REVIEW

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