Cypress Bio Rejects Buyout Again, Calls Offer Opportunistic, Undervalued

9/28/10Follow @bvbigelow

[Updated 9/28/10 2:05 pm. See below.] There’s little surprise in the announcement today by San Diego’s Cypress Bioscience (NASDAQ: CYPB), which says its board of directors has “unanimously rejected” the slightly higher buyout offer that Ramius Value and Opportunity Advisors made two weeks ago. But Cypress is doing a far better job in explaining itself, especially in asserting the Ramius offer would be financed by Cypress assets to the detriment of shareholders.

The New York private equity fund, a subsidiary of the $7.8 billion Ramius fund group, appealed directly to Cypress shareholders on Sept. 15, when it increased its offer by 25 cents a share, to $4.25, in a Wall Street confrontation that began as an unsolicited buyout offer two months ago. Cypress, which says it considered the offer carefully with its financial and legal advisors, says today the Ramius offer “grossly undervalues” Cypress’ business prospects, and is “highly illusory.” Cypress recently shifted its business strategy to focus on drug development for central nervous system disorders.

In its statement this morning, the Cypress board says it is advising stockholders not to sell their shares to Ramius and to withdraw any previously tendered shares from Cypress. Addressing a point of concern among shareholders over the company’s change in strategy, the San Diego biotech says it’s planning “a broad evaluation of Cypress’ strategic alternatives” to maximize value for all Cypress shareholders.

Cypress also cited a number of specific objections its board has to the Ramius deal, including:

—The Ramius offer is designed to provide Ramius “an extremely attractive return… at the expense of all other Cypress stockholders.” Cypress, which has no debt, asserts that the buyout offer would be funded “almost entirely” by Cypress’ own cash and other assets, including the monetization of its royalty from its milnacipran drug for fibromyalgia, which is marketed as Savella. As a result, Cypress says Ramius would provide only about $17.8 million, or 51 cents a share, of its own money in the deal.

—By financing the buyout in this way, the Cypress board contends the Ramius deal transfers the value of Cypress from its shareholders to Ramius.

—Cypress says the Ramius offer is an opportunistic attempt to buy Cypress shares when they are trading at a 43 percent discount from the company’s 52-week high. The company also maintains the Ramius offer includes numerous conditions that make it “highly unlikely” the deal can close on Oct. 13, when the offer officially expires.

[Updated to reflect Ramius response.] A Ramius official said this afternoon the firm was studying the Cypress statement and was not prepared to comment at this time.

Bruce V. Bigelow is the editor of Xconomy San Diego. You can e-mail him at bbigelow@xconomy.com or call (619) 669-8788 Follow @bvbigelow

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