Kyowa Hakko Kogyo Co., Ltd. (President and CEO, Yuzuru Matsuda, "Kyowa Hakko"), Kirin Pharma Company, Limited (President and Chairman of the Board of Directors, Katsuhiko Asano, "Kirin Pharma") and Kirin Holdings Company, Limited (President and CEO, Kazuyasu Kato, "Kirin Holdings") have reached a final agreement with respect to a transaction resulting in Kirin Pharma becoming a wholly owned subsidiary of Kyowa Hakko through a share exchange between Kyowa Hakko and Kirin Pharma (the "Share Exchange"), pursuant to the resolutions made at the respective meetings of the Boards of Directors of the three companies held today, Kyowa Hakko and Kirin Pharma have concluded a share exchange agreement (the "Share Exchange Agreement").
| 1. |
Purpose and Background of the Share Exchange |
| [1] |
Purpose and Basic Policy with Respect to the Strategic Alliance |
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In the pharmaceutical business, which is one of the core businesses of both the Kyowa Hakko Group and the Kirin Group, both the domestic and international management environments are changing substantially due to changes brought about by reforms in the pharmaceutical industry. Such changes include the revision of medical treatment fees and pharmaceutical price reductions due to changes in the medical system, increased efforts to contain drug costs, challenges presented by prominent pharmaceutical companies in Europe and the United States, increased global competition concerning the research and development of new drugs and the increased costs of research and development in order to discover new pharmaceuticals. In order to overcome this difficult environment and to promote rapid global growth, both groups decided that rather than pursuing business development separately, Kyowa Hakko and Kirin Pharma should strengthen their management base through integrating
Based on this shared awareness, both groups agreed on a fundamental concept of building a new company out of the combination of the respective distinctiveness and strengths of Kyowa Hakko and Kirin Pharma, based on the strength of each company in biotechnology, with the goal of developing a global top-class research and development-centered life sciences company based in Japan, and have reached an agreement to form a strategic alliance (the "Strategic Alliance") centering around the integration of Kyowa Hakko and Kirin Pharma (the "Integration") (the agreement pertaining to the Strategic Alliance, the "Integration Agreement").
With respect to the integration of the pharmaceutical businesses around which the Strategic Alliance centers, antibody drug technology-centered biotechnology is the strength of both Kyowa Hakko and Kirin Pharma. Through the integration of antibody technologies, both companies aim to improve drug development capabilities, expand opportunities to acquire novel antigens through an improved presence in the antibody drug sector and increase development speed of antibody drugs and proactive overseas business development through the mutual exploitation of antibody technologies. Furthermore, through the Integration, Kyowa Hakko and Kirin Pharma expect an increase in the scale of research and development and marketing, the establishment of effective business operations systems, and further strengthening of the profitability and competitiveness of their pharmaceutical business; all of which is believed to result in a strengthening of the operational base.
With respect to industries other than the pharmaceutical business, there are substantial similarities between the businesses in which the Kyowa Hakko Group and the Kirin Group operate (food, alcohol, health products mail-order business, and others) and both groups plan to raise their business value through the promotion of effective business integration and co-operation in each such industry.
The fundamental principle of the Strategic Alliance is the establishment of mutual cooperation across the whole business operation of both the Kyowa Hakko Group and the Kirin Group at the group level. Accordingly, the Kyowa Hakko Group and the Kirin Group aim to enhance synergy, strengthen competitiveness, improve management efficiency, realize further improved growth and maximize corporate value as a result of the advancement, through mutual discussion on an equal footing (regardless of business scale or capital relationship), of strategic business alliance and collaboration, leveraging off of each company's respective strengths to their best advantage.
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| [2] |
Contents of the Strategic Alliance |
| (1) |
Summary of the Strategic Alliance |
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The parties intend to realize the following transactions which have been mutually agreed on, conditioned upon obtaining promptly, based on applicable laws and regulations, the approval of the general meeting of shareholders of each company or the approval of the relevant domestic/overseas regulatory authorities.
| a. |
Acquisition of Shares of Kyowa Hakko by Kirin Holdings |
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Prior to the Integration, Kirin Holdings plans to implement the tender offer for the shares of common stock of Kyowa Hakko, at a purchase price of 1,500 yen per share, from Wednesday, October 31, 2007 through Thursday, December 6, 2007 (the "Tender Offer"). The Board of Directors of Kyowa Hakko approved of the Tender Offer at the meeting held on October 22, 2007. The Tender Offer is being conducted so that Kirin Holdings may acquire, in conjunction with the shares of common stock allocated and delivered to Kirin Holdings in the Share Exchange between Kyowa Hakko and Kirin Pharma as described below in "b. Share Exchange between Kyowa Hakko and Kirin Pharma and the Integration of the Pharmaceutical Businesses through Subsequent Merger", a total number of shares of common stock equivalent to 50.10% of the standard number of shares (the "Standard Number of Shares" (Note 1)) of Kyowa Hakko as of the effective date of the Share Exchange.
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(Note 1) |
The Standard Number of Shares of Kyowa Hakko is the sum of (i) the total number of issued shares of common stock of Kyowa Hakko (including the number of treasury shares of common stock held by Kyowa Hakko) and (ii) any excess of the number of shares of common stock underlying the stock acquisition rights issued by the Kyowa Hakko, over the number of treasury shares of common stock held by Kyowa Hakko.
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(Note 2) |
If the total number of tendered shares and other securities is less than 79,849,000 shares, none of the tendered shares or other securities will be purchased by Kirin Holdings. If the total number of shares tendered in the Tender Offer exceeds 111,578,000 shares, none or some of the excess portion will be purchased, and pursuant to the pro rata method as defined in Article 27-13, Paragraph 5 of the Financial Instruments and Exchange Law and Article 32 of the Cabinet Ordinance regarding disclosure of tender offer for shares and other securities by non-issuers, Kirin Holdings will make delivery and other settlements with respect to the purchase of shares.
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(Note 3) |
The Tender Offer may be postponed or cancelled upon the occurrence of an event which has a material adverse effect on, among others, the operations or assets of Kyowa Hakko, prior to the scheduled commencement date of the Tender Offer.
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For details of the Tender Offer, please refer to the "Notification with Respect to Commencement of Tender Offer for Shares of Kyowa Hakko Kogyo Co., Ltd.", released today by Kirin Holdings.
If the number of shares purchased through the Tender Offer is less than 111,578,000 shares, conditioned upon approval being obtained at the extraordinary meeting of shareholders which Kyowa Hakko plans to convene promptly after the conclusion of the Tender Offer (the "Extraordinary Meeting of Shareholders of Kyowa Hakko") for (i) the Share Exchange Agreement with respect to the Share Exchange described in "b. Share Exchange between Kyowa Hakko and Kirin Pharma and the Integration of the Pharmaceutical Businesses through Subsequent Merger" below, and (ii) other agenda items necessary for the execution of the Integration, Kyowa Hakko will allocate new shares to the Tender Offeror, at 1,500 yen per share, with the stock payment date set for March 25, 2008 (the "Third Party Allocation of New Shares"), in the amount necessary for Kirin Holdings to acquire, in conjunction with the common stock of Kyowa Hakko delivered to Kirin Holdings in the Share Exchange between Kyowa Hakko and Kirin Pharma, a number of shares equivalent to 50.10% of the Standard Number of Shares of Kyowa Hakko as of the effective date of the Share Exchange. If the Third Party Allocation of New Shares is implemented, Kyowa Hakko will obtain approval for the transaction by a special resolution at the Extraordinary Meeting of Shareholders of Kyowa Hakko.
In addition, if the Third Party Allocation of New Shares is implemented, its details shall be provided as soon as they are determined.
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| b. |
Share Exchange between Kyowa Hakko and Kirin Pharma and the Integration of the Pharmaceutical Businesses through Subsequent Merger |
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After the Tender Offer is completed, to promptly implement the integration of the pharmaceutical businesses, Kyowa Hakko and Kirin Pharma will, subject to the approval being obtained at their respective general meetings of shareholders, conduct the Share Exchange effective as of April 1, 2008. As a result of the Share Exchange, Kirin Pharma will become a wholly owned subsidiary of Kyowa Hakko, while Kirin Holdings shall become the parent company holding, in conjunction with the shares acquired through the Tender Offer and related transactions, shares equivalent to 50.10% of the Standard Number of Shares of Kyowa Hakko. Through the Share Exchange, Kyowa Hakko will allocate and deliver 8,862 shares (Note) of common stock of Kyowa Hakko for one share of common stock of Kirin Pharma held by Kirin Holdings, a total of 177,240,000 shares. Provided, however, that the Share Exchange shall be implemented conditioned upon the occurrence of either (i) the completion of purchase of the number of shares equivalent to the maximum number of shares scheduled to be purchased (111,578,000 shares) by Kirin Holdings in the Tender Offer, or (ii) the completion of the Third Party Allocation of New Shares after the completion of the Tender Offer.
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(Note) |
Treasury shares held by Kirin Pharma are scheduled to be cancelled by the day before the Share Exchange becomes effective. |
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After the Share Exchange becomes effective, Kyowa Hakko as the surviving company (the "Surviving Company") and Kirin Pharma as the merging company will merge (the "Merger") (the effective date of the Merger shall be October 1, 2008). As a result of the Merger, the integration of pharmaceutical business between Kyowa Hakko and Kirin Pharma will be complete. Matters to be provided in the merger agreement (the "Merger Agreement"), other than the above, will be determined before the conclusion of the Merger Agreement with respect to the Merger. In accordance with the Merger, the trade name of the Surviving Company will change and, after approval from the general meeting of shareholders, the trade name of the Surviving Company after the Merger shall become "Kyowa Hakko Kirin Co., Ltd.".
The reason for implementing the Share Exchange prior to the Merger as described above is to aid the prompt progress of preparations for the Merger by making Kirin Pharma a wholly owned subsidiary of Kyowa Hakko. For details of the Strategic Alliance, please refer to the "Notification with Respect to the Strategic Alliance Between Kyowa Hakko Group and Kirin Group Centering Around the Integration of Kyowa Hakko Kogyo Co., Ltd. And Kirin Pharma Company, Limited", released today by Kyowa Hakko, Kirin Pharma and Kirin Holdings.
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| (2) |
Promotion Structure for the Integration |
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After the conclusion of the Integration Agreement, the Kyowa Hakko Group and the Kirin Group will establish an integration preparatory committee co-chaired by the Presidents of Kyowa Hakko and Kirin Pharma, and will smoothly and promptly promote the Integration and business collaboration of the two groups.
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| (3) |
Management Structure of the Surviving Company after the Merger |
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| Trade Name of the Surviving Company after the Merger |
Kyowa Hakko Kirin Co., Ltd. |
| President and CEO |
Yuzuru Matsuda, (current President of Kyowa Hakko) (scheduled)
Yuzuru Matsuda, the President of the Surviving Company, will also serve as a Director of Kirin Holdings. |
| Executive Vice President |
Tomohiro Mune, (current Managing Director of Kirin Holdings) (scheduled) |
| Composition of Directors |
7 persons in total (including Yuzuru Matsuda and Tomohiro Mune)
5 persons from Kyowa Hakko (including one outside director)
2 persons from the Kirin Group
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The Surviving Company plans to adopt the Managing Officers System (shikko yakuin seido). |
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| Composition of Auditors |
5 persons in total (including one part-time Auditor)
4 persons from Kyowa Hakko (including three outside auditors (one of whom will be part-time)
1 person from the Kirin Group |
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| (4) |
Relationship between the Surviving Company and Kirin Holdings after the Merger |
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| After the Integration, the Surviving Company, will become a consolidated subsidiary of the Tender Offeror which, as a pure holding company, will hold a majority of the voting rights of the Surviving Company. The Surviving Company will, while respecting the fundamental principles of the Kirin Group operation, conduct an autonomous business activity based on independence and mobility, ensure the independence of its management as an ongoing public listed company, and continue to promote the maximization of profits for all of its shareholders and the sustained expansion of corporate value. In addition, the Ratio of the Standard Number of Shares of Kirin Holdings in the Surviving Company shall be 50.10% in principle for a period of 10 years from the date of the execution of the Integration Agreement, and after the Integration, Kirin Holdings will cooperate in the strongest reasonable manner to maintain the listing of the shares of the Surviving Company.
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| (Note) |
The Ratio of the Standard Number of Shares shall be the sum of (i) the number of shares of common stock of Kyowa Hakko which Kirin Holdings (including its subsidiaries and affiliates but excluding Kyowa Hakko and their subsidiaries and affiliates) holds and (ii) the number of shares of common stock of Kyowa Hakko which will be issued upon exercise of stock acquisition rights held by Kirin Holdings, divided by the Standard Number of Shares of Kyowa Hakko.
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| (5) |
Integration of Non-Pharmaceutical Businesses of the Surviving Company after the Merger |
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With respect to non-pharmaceutical businesses of the Surviving Company after the Merger, while promoting the Strategic Alliance, the parties plan to promptly establish a business operation system which will contribute to the maximization of the operation base and profitability for each party, and aim to develop each business area.
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| a. |
Bio-Chemicals Business |
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Because the business model of the bio-chemicals industry which centers around materials is different from that of the pharmaceutical business, the bio-chemical business will spin off as a subsidiary of the Surviving Company after the Merger and by April 2010, it will aim to establish an independent management system and growth. With respect to the health food mail-order business and alcohol business within the bio-chemical industry, because the same business exists in the Kirin Group, the parties will consider the integration of both businesses, with the aim of strengthening competitiveness, improving management efficiency and realizing further growth. With respect to bio-technology which is to form the basis for the Surviving Company after the Merger, because development and expansion can be expected not only in the pharmaceutical business but also in the bio-chemical business, the bio-chemical business will pursue and put into operation state of the art technologies, either together with the pharmaceutical business or in co-operation with it.
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| b. |
Food Business |
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Because there are substantial similarities between the businesses which Kyowa Hakko and Kirin Food-Tech Company, Limited, a company in the Kirin Group, operate, such as supplying ingredients (mainly seasoning) to manufacturers and their focus on strengthening their "take-out" and "dining-out" businesses, the parties will consider integrating their businesses, with the aim of strengthening and expanding the operation base.
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| c. |
Chemicals Business |
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The parties will aim to enhance sales of high-value added functional products, such as environmentally-friendly products which meet the post-Merger vision of the Surviving Company, while making efforts to stabilize profitability and enhance competitiveness through alliances with other companies, among others.
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