Promega Corp.’s new board of directors is turning down a high-priced takeover attempt by two stockholders who want to buy the company and oust its founder and CEO Bill Linton.
Ted Kellner and Nathan Brand submitted an offer in July to buy the stock of the privately owned Fitchburg company for $625 a share — two and a half times as much as Promega offered in a stock buy-back in 2014. Their proposal values the company at about $1.25 billion.
The board, most of whose members were appointed last month, “has carefully evaluated the proposal and voted to reject the offer,” Promega general counsel Dan Ghoca said in a Wednesday email to the State Journal.
“The board determined that the offer was not in the best interest of our business, our shareholders or our many constituencies,” Ghoca said.
“We are disappointed that our proposal has been rejected by the company,” Brand said in an interview.
“We continue to believe that our proposal represents a compelling opportunity for all shareholders.”
Promega has called a special meeting of share owners Nov. 6 to “report on specific information relating to the company’s business and affairs.”
The letter, obtained by the State Journal, does not specify the board has spurned the offer by the disgruntled stockholders.
Kellner and Brand claim the session was called because they submitted a demand to Promega, on Oct. 7, for a shareholders meeting. Kellner and Brand asked for an explanation of the previous directors’ resignations to be given at the meeting, according to an Oct. 27 letter the two sent to other investors.
They also requested that stockholders be allowed to take “a non-binding advisory vote” on their plan to buy shares at the $625 price.
The dissident stockholders say, though, they don’t think the company will answer their questions at the special session so they have scheduled their own meeting of investors, two hours earlier.
“Given these events, we have decided to arrange our own informal discussion open to all interested shareholders,” said the letter from Kellner and Brand, obtained by the State Journal.
Michael Gofman, assistant professor of finance at the UW-Madison School of Business, said there could be several explanations for the board’s decision to reject the offer.
“Option one, the board of directors thinks that the offer is too low relative to the true value of the company and it is in the best interests of the shareholders to reject it.
“Option two, they think that accepting the offer would generate value to the shareholders, but by rejecting it they expect to receive an improved offer that would benefit existing shareholders even more,” said Gofman, in an email exchange.
A third possibility, he said, is that the directors’ incentives are not well aligned with the interests of the shareholders.
The new board is now made up of five of Promega’s managers, including Linton. He appointed the other four after five directors resigned, all at once, and another stepped down eight days later, as the board was deliberating over the buyout offer in September. Five of the six were from outside the company; the sixth was a top Promega official and longtime board member.
Gofman said in a story earlier this month that a mass resignation of multiple directors of a private biotechnology company, is “very uncommon” over the past decade. For Promega, it was the third board change since 2014.
In July, two new directors joined the board. Last year, directors Peter Tong and Paul Shain were not reappointed.
Tong, an entrepreneur, is president of the Wisconsin Alumni Research Foundation board. Shain is president and CEO of Singlewire Software.
Their departures followed Promega’s stock buy-back in May 2014 in which the company offered to pay $233 to $272 per share in a process called a Dutch Auction. More than 325,000 shares were acquired during the repurchase, totaling more than $80 million, according to Promega’s 2015 annual report, obtained by the State Journal.
Shortly before the Dutch Auction, another director, Richard Pauls, resigned.
Kellner, executive chairman of a Milwaukee money management firm and Bradley Center board chair, and Brand, a Miami real estate developer and investor and Madison native, contend the buy-back vastly undervalued the stock.
Promega, founded in 1978, has branches in 16 countries and more than 1,300 employees worldwide — including 768 in Fitchburg — and had revenues of $367 million in 2014. The company makes and sells tools for biotech research and analysis, including genetic identification kits.
Brand told the State Journal more than 75 Promega shareholders, of a total of about 330, have contacted him and Kellner with “tremendous support” for their proposal. Only one person had a negative response, he said.
Asked if a lawsuit is possible, he said: “We are in the process of considering our options.”
In an earlier letter to fellow shareholders, Kellner and Brand expressed concerns over the possible use of Promega stock to support Usona Institute, a nonprofit Linton set up in July 2014.
Usona is supporting a study by the UW School of Pharmacy into the use of substances such as LSD and psychedelic mushrooms to help cancer patients manage their anxiety.
Ghoca, Promega’s general counsel, said the board remains committed to the company’s growth.
“Our fundamental, long-term strategy for the business remains unchanged,” Ghoca said in an email. “We will continue to develop and deliver high-quality products and services for the benefit of our customers, shareholders, employees and the global communities in which we operate.”