April 5, 2023 – The Debtors filed a motion requesting each of a bidding procedures order and a sale order [Docket No. 5533]. The bidding procedures order would: (i) approve bidding procedures in relation to the sale of the Debtors' Avrio assets (the “Sale” and the "Avrio Assets*," respectively), (ii) authorize the Debtors to enter into a stalking horse arrangements with Atlantis Consumer Healthcare Inc., a wholly-owned Subsidiary of Arcadia Consumer Healthcare Inc (the “Stalking Horse Bidder,” $397.0mn purchase price), (iii) authorize the debtors to provide the Stalking Horse Bidder with bid protections including a $11.91mn break-up fee and a $3.97mn expense reimbursement, and (iv) adopt a proposed auction/sale timetable culminating in an auction on May 17th and a sale hearing on May 23th. The sale order would approve the Sale. The Stalking Horse Bidder’s asset purchase agreement (the “APA”) is attached as Exhibit C to the motion.
*These non-opioid assets include "substantially all of the assets of the Debtors’ consumer health business, which is currently conducted by Avrio Health L.P." Avrio Health's product range includes antiseptic Betadine and laxative Senokot.
As detailed below, the Debtors' investment banker has been engaged in sale efforts in respect of the Avrio Assets since the summer of 2022 and have already run an extensive, multiple-round, marketing process in its effort to select a stalking horse, with final bid proposals from the two top candidates in the field submitted on March 19th. Given that the stalking horse's bid is still susceptible to a topping offer, much of that pre-auction effort will have been to secure the leg up provided by the almost $16.0mn of bid protections granted to the Stalking Horse Bidder.
The Stalking Horse Bidder, whose brands include leading fungal nail, diarrhea and dandruff products (someone has to), won the stalking horse role with a bid that includes $368.0mn in upfront consideration and up $29.0mn of contingent consideration.
Marketing and Sale Process
The motion [Docket No. 5533] provides, “PJT Partners LP (‘PJT’) has been engaged as investment banker to the Debtors since the Petition Date. PJT has been working with the Debtors’ management team and coadvisors to explore strategic alternatives for the Avrio Assets, including conducting the extensive marketing and negotiation process described in more detail below. After considering a wide range of potential strategic alternatives and extensive discussions with relevant stakeholders, PJT and the Debtors ultimately determined that a sale of the Avrio Assets would maximize the value of these significant non-core, non-opioid assets.
The Debtors and PJT began working on marketing materials to support the sale of the Avrio Assets in the summer of 2022. In December 2022, PJT began reaching out to a broad universe of potential purchasers that PJT had identified as potentially having the interest and wherewithal to act as a ‘stalking horse’ bidder for the Avrio Assets in connection with a Courtsupervised auction process. Over the course of this initial outreach, PJT contacted a total of over 70 financial and strategic parties. Several of these parties, including the Stalking Horse Bidder (as defined below), expressed interest in considering a transaction with the Debtors, and each was offered an opportunity to enter into a non-disclosure agreement to continue in the process. The Debtors executed non-disclosure agreements with 33 of these parties, each of which was granted access to a data room containing limited confidential information regarding the Avrio Assets. Throughout this initial stage, each prospective purchaser interested in doing so attended diligence calls and meetings with PJT and the Debtors’ management team. Due diligence calls and information were granted to the extent appropriate for this initial stage of the process. The Debtors and PJT requested that interested parties submit their round one proposals by January 24, 2023.
As described in the Schnitzler Declaration, sixteen interested parties submitted round-one proposals. The Debtors and their advisors reviewed and discussed the round one proposals and elected to invite eight parties into the second round of the process based on numerous factors, including the economic and other terms of the proposals, the parties’ financial wherewithal to acquire the Avrio Assets, and the parties’ perceived level of interest. The parties invited into the second round of the process were granted the opportunity to attend a management presentation with the Debtors’ management team and were granted access to a virtual data room that included additional confidential information regarding the Avrio Assets….The Debtors and PJT requested interested parties to submit round-two proposals on March 14, 2023. Three prospective purchasers submitted round two proposals which included financing commitment letters. The prospective purchasers also submitted comments and issues on the Debtors’ draft form of Stalking Horse Agreement.
The Debtors and the Debtors’ advisors reviewed the round two proposals, engaged in discussions and concluded to have two potential purchasers submit best and final proposals by March 19, 2023. Prior to March 19, 2023, the Debtor’s advisors provided the potential purchasers with key economic and legal feedback on their second-round proposals. Both potential purchasers submitted documentation reflecting their best and final proposals and both parties’ financial and legal terms improved materially from their round 2 proposals. After March 19, one of the potential purchasers revised its best and final proposal to reflect current business conditions for the Avrio Assets. After thoroughly evaluating the final proposals, the Debtors, in the exercise of their business judgment and with the assistance of their advisors, determined that the revised best and final proposal (the ‘Stalking Horse Bid’) submitted by the Stalking Horse Bidder offered the most favorable terms available, taken as a whole, including the highest price. The total purchase price of three hundred ninety-seven million dollars ($397,000,000) (plus the assumption of certain liabilities) consists of three hundred sixty-eight million dollars ($368,000,000) in upfront consideration (the ‘Upfront Consideration’) plus up to twenty-nine million dollars ($29,000,000) of contingent consideration (the ‘Contingent IP Consideration’) consisting of six million dollars ($6,000,000) upon the transfer of certain intellectual property rights (‘IP’) related to Betadine® and Betasept®, fifteen million dollars ($15,000,000) upon the transfer of certain IP related to Senokot®, and up to eight million dollars ($8,000,000) upon the assignment of an agreement with Alcon Universal Ltd. concerning the Betadine® 5%- Sterile Ophthalmic Prep Solution.
To ensure that the Stalking Horse Bid is in fact the highest or otherwise best offer for the purchase of the Avrio Assets, the Debtors have developed Bidding Procedures to allow interested parties to submit competing bids for the Avrio Assets. The Stalking Horse Agreement, therefore, sets a floor for value to be obtained in the sale of the Avrio Assets in a competitive bidding process, which will benefit all of the Debtors’ stakeholders by providing certainty while also helping to ensure the highest or otherwise best offer for the Avrio Assets.
The Debtors have carefully evaluated a number of qualitative and quantitative factors in designing a process that they believe will maximize the value of the Avrio Assets and produce maximum recoveries. This process includes both entry into the Stalking Horse Agreement and approval of the Bidding Procedures, which are designed to (a) promote active bidding from interested parties and (b) elicit the highest or otherwise best offers available for the Avrio Assets for the benefit of stakeholders.
The Debtors, in consultation with their advisors, believe that the process and time periods set forth in the Bidding Procedures are reasonable and will provide parties with sufficient time and information necessary to formulate bids to purchase the Avrio Assets. In formulating the Bidding Procedures and time periods contained therein, the Debtors balanced the need to provide adequate and appropriate notice to parties in interest and to potential purchasers with the need to efficiently sell the Avrio Assets to maximize realizable value, all while preventing the disclosure of confidential information to competitors that could be damaging to the business going forward. As described above and more fully in the Schnitzler Declaration, the Avrio Assets have been extensively marketed by PJT over approximately four months to a broad group of over 70 potential strategic and financial buyers determined by PJT to be most likely to have interest in and wherewithal to consummate a transaction with Avrio, who have been provided with substantial information regarding the Avrio Assets.”
The Avrio Assets
“As described more fully in the Schnitzler Declaration, the Debtors are seeking to sell substantially all of the assets of the Debtors’ consumer health business, which is currently conducted by Avrio Health L.P. (“Avrio” and such assets, collectively, and as further defined in the Stalking Horse Agreement, the “Avrio Assets”).
Avrio engages in the marketing, sale, and distribution of four principal and well known over-the-counter (“OTC”) medications: Betadine® and Betasept® (an antiseptic for use at home and in hospitals, and which is an important defense against topical infections); Colace®, Peri-Colace®, and Colace 2-IN-1® (stool softeners and stool stimulants to treat occasional constipation); Senokot® (a laxative for occasional constipation); and SlowMag® (a magnesium supplement with high-absorption magnesium chloride plus calcium). OTC medications are FDAregulated but do not require prescriptions. Avrio has no role in Purdue’s branded or generic prescription medication business and, for the avoidance of doubt, has not and does not manufacture, sell, or distribute opioid pain medications and related products.
The Debtors have determined that conducting a sale of the Avrio Assets in accordance with the Stalking Horse Agreement and the Bidding Procedures is both value maximizing and in the best interests of the Debtors’ estates. Importantly, a sale of the Avrio Assets at this time would maximize the amount of cash in the Debtors’ estates available to dedicate to opioid abatement efforts upon effectiveness of a plan of reorganization."
Key Terms of the Stalking Horse APA
- Seller: Avrio Health L.P., a Delaware limited partnership.
- Purchaser: Atlantis Consumer Healthcare Inc.
- Guarantor: Arcadia Consumer Healthcare Inc., a Delaware corporation
- Purchase Price:The aggregate consideration for the Avrio Assets shall be approximately three hundred and ninety-seven million dollars ($397,000,000), which shall consist of the following:
- Upfront Consideration: Upfront Consideration in an amount equal to (a) three hundred and sixty-eight million dollars ($368,000,000), plus (b) the Net Working Capital Adjustment Amount, minus (c) any Excess Cure Amount, minus (d) the Adjustment Escrow Amount in cash paid at Closing, by wire transfer of immediately available funds;
- IP Contingent Consideration: As consideration for the Betadine Licensed IP, the Purchaser shall pay to the Seller an amount equal to six million dollars ($6,000,000) (the “Betadine Contingent Consideration”), upon the transfer of the Betadine Licensed IP by the Seller to the Purchaser. As consideration for the Senokot Licensed IP by the Seller to the Purchaser, the Purchaser shall pay to the Seller an amount equal to fifteen million dollars ($15,000,000) (the “Senokot Contingent Consideration”), upon the transfer of the Senokot Licensed IP by the Seller to the Purchaser. As consideration for the assignment of the Alcon Agreement, the Purchaser shall pay to the Seller an amount equal to the lesser of (i) four (4) times the average Royalty Payment Amount across the three (3) years prior to the Closing Date, (ii) four (4) times the Royalty Payment Amount for the trailing twelve-month period based on the most recent invoice available for the Alcon Agreement as of the Closing Date and (iii) eight million dollars ($8,000,000) (the “Alcon Contingent Consideration”), upon the assignment of the Alcon Agreement by the Seller to the Purchaser. Together, the Betadine Contingent Consideration, the Senokot Contingent Consideration, and the Alcon Contingent Consideration shall be referred to herein as the “IP Contingent Consideration.” In the event that any one of the three components of the IP Contingent Consideration is not paid when due, such amount shall bear interest from the due date until the date of payment thereof at a per annum rate equal to 2.00%, effective from the date that payment was due, compounded monthly.
- Bid Protections: The Bid Protections shall include: (i) Break-Up Fee in the amount of eleven million nine hundred and ten thousand dollars ($11,910,000); and (ii) Expense Reimbursement in an amount not to exceed three million nine hundred and seventy thousand dollars ($3,970,000).
Proposed Key Dates
- Hearing to consider approval of the Bidding Procedures and entry of the Bidding Procedures Order: April 25, 2023
- Potential Bidder deadline: May 2, 2023
- Bid Deadline: May 15, 2023
- Auction: May 17, 2023
- Sale Objection Deadline: May 19, 2023
- Sale Hearing: May 23, 2023
On September 14, 2019, Purdue Pharma L.P. and 23 affiliated Debtors (“Purdue” or the “Debtors,” with organizational and ownership charts included on pages 17/18 of the Petition) filed for Chapter 11 protection noting estimated assets between $1.0bn and $10.0bn; and estimated liabilities between $500.0mn and $1.0bn.
December 16, 2021, U.S. District Judge Colleen McMahon issued a decision vacating the Bankruptcy Court order confirming the Debtors’ Plan of Reorganization, stating in the ruling that the lower court lacked “statutory authority to impose the Section 10.7 Shareholder Release” [Docket No. 280 in U.S. District Court for the Southern District of New York Case Number 21-cv-7532].
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The post Purdue Pharma L.P. – After Extensive Marketing Process, Debtors Choose Arcadia Consumer Healthcare Inc. Subsidiary ($397mn Bid) as Stalking Horse in Sale of Debtors’ (Non-Opioid) Consumer Health Business: Avrio Health L.P. appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.