Case Study - Cypress
In July 2010, Cypress Bioscience received an unsolicited offer from Ramius, an investment fund known to take activist stances, for $4.00 per share. At the time, Cypress’s stock was trading at $2.50 per share. Management and the Board of Directors faced a dilemma as it was their view that the company was worth significantly more, but was vulnerable because of the current market price of its shares. Faced with few options other than to enter a sale process, Cypress and Deerfield began discussions about what avenues might be taken to preserve the company’s ability to execute its business plan and maximize shareholder value. Management believed that the company was worth in excess of $6.00 per share. In response, Deerfield devised a financing strategy that would allow Cypress to offer to repurchase half of its outstanding shares
at $6.00 per share. Deerfield agreed to provide $80 million to Cypress in exchange for a note and warrants. The note was to be repaid over time using the cash generated by the royalty that Cypress receives on its drug for fibromyalgia which is being marketed by Forest Laboratories. The combination of the value being passed to Cypress shareholders and leveraged value of its remaining business plan was of a compellingly higher value than the Ramius offer. In addition, Deerfield’s proposal offered the Cypress Board an objective means of defending its decision to turn down the hostile bid. Ramius raised its offer to $4.25 in September of 2010 and to $5.50 in December. Ultimately, working with Royalty Pharma, Ramius was able to raise its bid to $6.50 a share, which the Board and management gladly accepted.