Merz Pharma enters bidding war for Obagi; Ferro sells pharma unit

German family-owned firm Merz Pharma has written to the board of director of Obagi Medical Products outlining a proposal to acquire all of the outstanding common stock of Obagi for $22 per share (around $383.5 in total) in cash. This proposal represents a 58% premium to Obagi's closing share price on March 14, 2013, and 11% higher than the $19.75 ($344 million) takeover offer from Canada’s Valeant Pharmaceuticals (TSX: VRX) announced last month (The Pharma Letter March 20).

At that time, Merz said it was engaged in ongoing discussions with Obagi regarding a potential combination, and was not made aware that Obagi was contemplating signing a deal with another party on an accelerated timeframe. Merz has delivered its proposal to Obagi's board and believes it constitutes a "Superior Proposal" under the terms of the Obagi/Valeant merger agreement. Importantly, the Merz proposal also represents a significant premium to the offer from Valeant.

Merz claims to have the necessary cash on hand to fund the transaction and does not require additional due diligence, and is prepared to move forward immediately to complete this deal. Given Merz's portfolio of injectables, Obagi is a natural fit for Merz. This combination would also expand its US market presence and strengthen and diversify its dermatology portfolio through additional quality skin care options. Merz is publicly disclosing this letter in order to ensure that Obagi stockholders have an opportunity to benefit from its superior proposal.