05 MAR 2019 | DARMSTADT, GERMANY
Merck KGaA, Darmstadt, Germany, a leading science and technology company, today issued an open letter to the shareholders of Versum Materials, Inc. (“Versum”). On March 1, the Versum Board of Directors without any further explanation rejected Merck KGaA, Darmstadt, Germany’s superior proposal to acquire all of the outstanding common stock of Versum for $48 per share in cash. In its letter, Merck KGaA, Darmstadt, Germany said: “We are fully committed to pursuing our Proposal. The Versum Board should consider the best interests of its shareholders and engage with us.”
The full text of the letter is included below and can also be found at www.thesuperiorproposal.com.
An Open Letter to Versum Shareholders from Merck KGaA, Darmstadt, Germany
Dear Fellow Versum Shareholders:
We are disappointed that the Versum Board of Directors has rejected without explanation our superior proposal to acquire all of the outstanding common stock of Versum for $48 in cash per share (our “Proposal”). Further, our offer to engage directly with Versum to understand the rationale for the Versum Board’s determination has not been accepted. We urge you to let the Versum Board know that Versum shareholders will not support the Entegris acquisition in light of our Proposal, which is unquestionably superior.
The market has spoken with respect to the value of our Proposal relative to the Entegris acquisition
Our Proposal reflects a 51.7% premium to Versum’s unaffected price and a 17.1% premium to the current market value of the Entegris stock that Versum shareholders would receive in the Entegris acquisition. Since the time our Proposal was announced, 35.6 million Versum shares have traded (32.6% of the total number of Versum basic shares outstanding) in just four trading days at a volume weighted average price of $48.58, an 18.5% premium to the current implied value of the Entegris stock consideration. Further, the premium valuation reflected in our Proposal is certain and immediate, without any of the significant ongoing integration, operational or market risks reflected in the value of the Entegris stock consideration and without the need for the achievement of synergies.
The market has overwhelmingly expressed a preference for our Proposal.
The published financial analysis of Lazard – Versum’s own financial advisor – supports our view that our Proposal is superior to the Entegris acquisition
The analysis of Versum’s own financial advisor – Lazard – supports our view that our Proposal is superior, both standalone and relative to the Entegris acquisition. Lazard’s financial analysis included in the proxy statement filed by Entegris and Versum on February 28, 2019 (the “Proxy Statement”), the day following delivery of our Proposal, reflects the following values for Versum:
Lazard’s Valuation of Versum and Premium of Our Proposal to Midpoint of Lazard’s Valuation Range[1]:
Lazard also completed a “has-gets” analysis to compare the discounted cash flow value, including synergies, relative to Versum’s standalone value. That analysis, which is summarized below, demonstrates that Lazard’s valuation analysis is consistent with the market’s view that the value of the stock consideration offered by Entegris is far less than the value of our Proposal.
| Lazard’s DCF Value of Merger Consideration Including Synergies[2] | ||
| Run-RateSynergies ($mm) | DCF Value Per Share of the Entegris Merger Consideration Including Synergies | The Proposal:Premium to DCF Value Per Share of the Entegris Merger Consideration Including Synergies |
| $75 | $41.43 | 15.9% |
| $85 | $41.71 | 15.1% |
| $100 | $42.19 | 13.8% |
The Versum Board appears to have disregarded the valuation analysis of its own financial advisor in rejecting our Proposal.
The Versum Board has not engaged in a process to maximize shareholder value
The background of the merger section of the Proxy Statement indicates that discussions began between Versum and Entegris in December 2018. Less than two months later, Versum announced a transaction with Entegris without conducting a market check to determine what alternatives might be potentially available to Versum’s shareholders. The final exchange ratio reflected only a 10.8% premium to the market value of Versum’s stock at the time of the announcement. Further, during the course of the negotiation, the final exchange ratio reflected only a 2.1% increase from the exchange ratio initially offered by Entegris. After our Proposal was delivered, the Versum Board never contacted us to discuss our Proposal, implemented a poison pill and quickly rejected our Proposal.
These actions do not reflect a desire to maximize shareholder value.
Our Proposal offers more opportunity for Versum’s employees
While the transaction with Entegris is described as a “merger of equals”, there appears to be nothing equal about the treatment of Versum’s employees relative to those of Entegris.Entegris has already announced its intention to operate the combined business from its headquarters in Billerica, MA, more than 2,500 miles away from Tempe.
At Merck KGaA, Darmstadt, Germany, people have always been and will continue to be at the center of everything we do. We already have a strong footprint in the U.S. and a track record as a top employer. Over the past decade, the company invested some $24bn in the U.S. through acquisitions alone, including the successful acquisitions of Millipore in 2010 and Sigma-Aldrich in 2015.
Our intention is to maintain Versum’s Tempe site as the major hub for the combined electronic materials business in the U.S., complementing our strong commitment to this important market. Versum employees will become an integral part of a leading electronic materials business and will benefit from new and exciting development opportunities within a truly global science and technology company.
We are committed to pursuing our Proposal
We are fully committed to pursuing our Proposal. The Versum Board should consider the best interests of its shareholders and engage with us.
Merck KGaA, Darmstadt, Germany’s proposal is clearly superior to the Entegris acquisition.
We know that Versum shareholders agree with us.
Tell the Versum Board how you feel.
Advisors
Merck KGaA, Darmstadt, Germany has engaged Guggenheim Securities, LLC as its financial advisor and Sullivan & Cromwell LLP as its legal counsel.
[1] Stand-alone Versum values per share compiled from Lazard’s valuation work disclosed in the Proxy Statement. The premia of the value of the Proposal relative to each of the stand-alone values were calculated by Merck KGaA, Darmstadt, Germany.
[2] DCF value per share of the merger consideration including synergies derived from Lazard’s has-gets analysis disclosed in the Proxy Statement, which expresses these values as a premium to Versum’s share price. The premia of the value of the Proposal relative to each of the value of the merger consideration including synergies were calculated by Merck KGaA, Darmstadt, Germany.