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Mentor May Offer Cash to Sway Medicis

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Investorman Member Level  Monday, 11/21/05 12:20:49 PM
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Mentor May Offer Cash to Sway Medicis
Monday November 21, 11:34 am ET
By Wallace Witkowski, AP Business Writer
Mentor May Offer Cash to Sweeten Rejected $2.2 Billion Offer for Medicis

NEW YORK (AP) -- Cosmetic-surgery products company Mentor Corp., whose $2.2 billion bid to acquire Medicis Pharmaceutical Corp. was rebuffed by the maker of acne medicine, said Monday it may sweeten its bid by offering substantially more cash than stock.

Shares of Medicis surged $5.03, or 18 percent, to $32.78, and shares of Santa Barbara, Calif.-based Mentor fell $2.32, or 4.1 percent, to $53.82 in morning trading on the New York Stock Exchange.

Medicis' board rejected Mentor's offer on Sunday evening, saying it is committed to completing its proposed acquisition of Santa Barbara-based Inamed Corp. Both Mentor and Inamed are awaiting a decision from the Food and Drug Administration that would allow silicone-gel breast implants to return to the market. They have been off the U.S. market for the past 13 years because of safety concerns.

Scottsdale, Ariz.-based Medicis had offered in March to buy Inamed for about $2.8 billion in cash and stock. But last week, Medicis was upstaged by Botox-maker Allergan Inc.'s $3.2 billion offer for Inamed. Inamed's board instructed management to consider the Allergan offer.

Mentor, in a letter to Medicis on Friday, told the company that its offer is a superior proposal to the Inamed deal. Mentor offered Medicis shareholders 0.62 shares of Mentor common stock for each Medicis share, a 25 percent premium to Medicis' closing price on Friday, the company said. Medicis would own 44 percent of the combined company. Mentor said its board has already backed the transaction.

In a conference call on Monday, Mentor Chief Executive Joshua Levine urged Medicis' board to reconsider the proposal and said it may make a significant portion of the offer in cash to bring Medicis to the table. Goldman Sachs and Citigroup have assured the company that financing is available, he said.

Mentor said it expects the transaction to immediately boost cash earnings. Analysts surveyed by Thomson Financial expect earnings per share of $1.59 in 2006 and $1.98 in 2007. In the conference call, Levine said he would expect the transaction to raise earnings per share in the low double-digit percentages. However, CIBC analyst John Calcagnini repeatedly called that estimate too high.

Lazard analyst Alex Arrow asked if Mentor would consider a hostile bid if resistance continues.

"We're going to wait for the dust to settle," Levine said on the call. "We know what our options are."

The combined company would have revenue of nearly $900 million for the year ended Sept. 30, and would offer products for breast augmentation, facial aesthetics, body contouring and dermatology. Mentor said the transaction would not have the same antitrust risks as the proposed Medicis-Inamed deal.

Levine added that Mentor is ready to file a confidentiality agreement with Medicis and enter a definitive merger agreement. Were that to proceed, the CEO expects shareholder meetings to be held in the first quarter of 2006.

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