Shareholders of Biovail Corp. enthusiastically endorsed a merger with a U.S. rival, despite last-minute warnings from the company's founder that the deal could lead to its downfall.
At a brief shareholder meeting in Toronto Monday morning, Biovail shareholders voted 99.9 per cent in favour of the merger with California-based Valeant Pharmaceuticals International. Meanwhile, in New Jersey, Valeant shareholders voted to support it by an equally overwhelming proportion.
The deal, first announced in June, was expected to close before the markets opened Tuesday morning. The merged entity will use the Valeant name, trade on the Toronto Stock Exchange, and combine the two companies' product lines in dermatology, neurology and ophthalmology.
Few shareholders appeared to have been swayed by comments from Biovail founder Eugene Melnyk, who released a letter over the weekend denouncing the amalgamation. Despite having reduced his holdings in the company to a few thousand shares, Mr. Melnyk said in a telephone interview Monday that he "sees something very wrong here," and as a "knowledgeable observer" he wanted to speak out.
Mr. Melnyk said one of his main concerns is the amount of debt the company is taking on to pay a large special dividend to shareholders. He also dislikes the approximately $25-million severance payout to outgoing Biovail chief executive officer Bill Wells, and is upset at the number of jobs the company intends to cut. He predicted a "very, very bleak" future for the new entity.
Under the terms of the merger, Valeant shareholders get 1.7809 Biovail shares for each share they own of their own company, as well as a $16.77 (U.S.) special dividend per share.
Mr. Melnyk has been battling the management of Mississauga, Ont.-based Biovail since he stepped down as chairman in 2007. In 2008 he staged a failed proxy battle against the company, trying to get its board overthrown and new management installed. He objected to the company's shift in focus from creating new formulas of existing drugs to selling drugs for disorders of the central nervous system.
After the shareholder meeting, Mr. Wells said he did not want to comment on Mr. Melnyk's complaints, but added "the result of the vote speaks for itself." He noted that Biovail stock has risen sharply since the deal was revealed - from around $15 at the time of the announcement in June to more than $27.
Mr. Wells said his multimillion-dollar severance payment needs to be "put in context of over $2-billion of shareholder value which has been created" since he took over the firm a little more than two years ago.
About 1,000 people in the combined work force of 4,000 will lose their jobs after the merger is complete. Mr. Wells, who is staying on as chairman of the new company, said the job losses will be roughly divided between the United States and Canada, and the bulk will result from combining the sales staff of the two entities. Biovail's manufacturing plant in Steinbach, Man. could expand to make some of Valeant's products, he said.
The new company "is now much more diversified, has many different areas of growth, and has an incredible amount of cash flow available to accelerate that growth," Mr. Wells said.
Valeant CEO Michael Pearson will take over the top job in the new company. He has said the new firm will perform substantially less research and development than its peers, but that innovation will still occur by buying products from others.