a great read......
Dick Pratt in lucky purchase
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August 3, 2006
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A $108 million bid from CSL has breathed life into a moribund biotech - and enriched its well-connected investors. Rebecca Urban reports.
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MORE than two years have passed since Zenyth Therapeutics, set up by the Victorian Government, was much of an prospect.
Plagued by clinical trial failures, a controversial asset sale and a sinking share price, the company had largely lost the interest of the market. So, when a single parcel of 4 million shares was traded on March 30 this year, interest was revived.
Four days later Thorney Pty Ltd, an investment company owned by billionaire Richard Pratt, revealed it had paid $2 million for shares owned by Queensland Investment Corp. It was a big purchase, increasing Thorney's stake to 21.9 million shares, or almost 18 per cent of the company.
At the close of business that day Thorney's shareholding was valued at about $11.5 million. Four months later, thanks to the merger offer from CSL, it has increased to almost $19 million.
There had been plenty of speculation linking Zenyth to mergers and takeovers. Fellow biotechs Peptech and Pharmaxis were once rumoured to be potential suitors.
Still, the share price remained flat until kicked along by news that Thorney had increased its holding. A notice to the stock exchange showed that the investor had been snapping up small batches of Zenyth shares since December. The fact that Queensland Investment Corp, arguably the largest institutional investor in the sector, had lightened its stake did not seem to matter to the market. In the following month, trading volumes increased and Zenyth's share price rallied almost 15 per cent.
While there is no suggestion Thorney had inside knowledge of the impending CSL bid, the biotechnology industry in Melbourne is compact and close-knit. It's hardly surprising that players regularly cross paths.
According to the website of leading law firm Minter Ellison, Zenyth chairman Ian Davis counts Thorney Investment Group and Pratt Industries among his legal clients. Mr Davis is a senior partner specialising in corporate law.
And Zenyth director Silviu Itescu once advised Thorney, run by Mr Pratt's son-in-law Alex Waislitz, on its biotech investments. They share common interests outside of Zenyth. Dr Itescu is a director of Ambri, another of Mr Waislitz's biotechnology investments. And Thorney has invested in Mesoblast, a listed stem cell company founded by Dr Itescu. Mesoblast and Thorney are based on the same floor at 55 Collins Street, Melbourne. Dr Itescu admits he and Mr Waislitz have long been friends.
Thorney's March purchase came as merger discussions between Zenyth and CSL were under way. Directors from both companies had signed non-disclosure agreements in January, at the start of confidential talks.
Shortly after, Zenyth provided CSL access to company documents, including pre-clinical research data, financial statements and contracts.
Dr Itescu said that he no longer advised Thorney so did not know why it had increased its holding earlier this year. He said he would not be surprised if it had simply responded to media articles about merger speculation.
Nor is Thorney the only Zenyth shareholder who will fare well as a result of the CSL merger. The company's largest shareholder, Circadian Technologies, will reap $24.3 million worth of cash and shares. The Victorian Government will take a $16.9 million cut and Queensland Investment Corporation's remaining 6 per cent stake will glean it $6.9 million.
Zenyth staff who own shares and stock options have also benefited. Just five days before the CSL merger proposal was made public, the board approved the issue of 1 million options to five senior executives. The options were issued on July 12 and carried an exercise price of 62c.
On July 17 the companies jointly announced CSL's plan to acquire Zenyth, offering 86c per share. Zenyth shares have since surged 50 per cent to 82.5c.
According to a notice lodged with the stock exchange, the options were provided in recognition of staff achievements and to "provide incentives for ongoing performance and loyalty".
It is not clear whether the options vested immediately - allowing the recipients to trade them in for shares - or in tranches, as was the case when Zenyth staff were issued options in 2005. Zenyth chairman Ian Davis did not respond to telephone calls or emails.
However, the company's chief executive, Andrew Nash, who was not a recipient of the options, said last week that the options were issued following annual performance reviews.
Asked whether the board considered the negotiations with CSL when issuing the options, Dr Nash said: "It was important for all staff that we kept everyone focused on the business … I'm not suggesting that we didn't consider the timing but the board was focused on business as usual".
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