Baker Bros Supports Merging Two Small Biotech Companies: BCRX and IDRA, while Great Point and RA Capital Oppose.
Because I like to take advantage of arbitrage opportunities when I can find them, today I researched a proposed merger between BioCryst Pharma (BCRX) and Idera Pharma (IDRA). On January 11, 2018 the companies announced that their respective boards unanimously recommended that their shareholders vote to approve their plan for a "merger of equals".
The problem is, the shareholders don't seem eager to vote for the merger. Share prices of both companies dropped on the announcement, and in subsequent weeks Great Point Partners (GPP) and RA Capital Management (both are major shareholders of BCRX) wrote letters ( here and here ) to the board of BCRX expressing their opposition to the proposed merger and their intent to vote their shares against it. Interestingly, they claim that the the merger was an attempt by Baker Bros, the largest shareholder of both companies, to use their ownership percentage of IDRA as a way to increase their ownership of BCRX on the cheap while doing so at the expense of diluting all the other BCRX shareholders.
GPP attempts to expose Baker Bros's plan in their letter with this clever summary below, which was attached to an SEC Filing:
The two boards have now post-posed their respective shareholder vote deadlines on the merger from May, 2018, to July, 2018 by providing the stated reason of giving shareholders time to review clinical data to be released by IDRA at an upcoming ASCO conference in June. Methinks they may not be confident in having enough votes to approve the merger right now.
I hope to analyze the deal for arbitrage opportunities once it seems that the merger is likely to happen with solidified terms; I would not be surprised to see the merger renegotiated to give existing BCRX shareholders better terms.
