Amgen-Onyx Merger Deal

The Purchase Deal Conditions

Representation and warranties (R&W)- These are fundamentally the underlying matters or facts as
they are being presented in terms of the agreement. An important characteristic of any agreement is
the building of R&W by the parties to each other. The sellers R&W comprise the larger part of the
agreement. R&W serve three main purposes.
They are informative- The sellers R&W, and they carve outs to the R&W by way of a
disclosure schedule coupled with the buyers due diligence, enable the buyer to learn as much as
possible about the sellers business prior to signing the definitive acquisition agreement.
They are protective-The representations made and warranties given by the seller provide a
mechanism for the buyer to walk away from, or possibly to renegotiate the terms of, the acquisition, if
the buyer discovers facts that are contrary to the R&W between the signing and the closing of the
transaction or even afterwards.
They are supportive. The sellers R&W provide the framework for the sellers indemnification
obligations to the buyer after the closing.
The R&W will survive the termination of the agreement. Therefore, the acquirer would be entitled to
claim indemnification on the basis of misrepresentation post closing. The law does not impose any
limitation from seeking indemnification if the claim is raised within the prescribed period from the time
the cause of action arose. However, the parties may contractually agree to limit the benefit of the
representation on the insistence of the seller
Termination
Deal Conditions Cont.
Covenants- They can classified into negative and affirmative covenants. Negative covenants
protects the buyer as the seller is restricted from taking any actions prior to the closing that changes
the business the buyer wishes to buy, restrict the seller from taking certain actions prior to the closing
without the buyers prior consent.

Affirmative Covenants Negative Covenants
Affirmative covenants obligate the seller or the buyer to
take certain actions prior to the closing
Not entering into transactions or incurring liabilities
outside the ordinary course of business or in excess of
certain amounts
Obtaining the necessary approvals from the board and
the shareholders;

Not mending or terminating material contracts
Obtaining the necessary third party consents; and

Not making capital expenditures beyond those budgeted,
disclosed
Obtaining the necessary statutory approvals Not transferring assets other than those contracted for
and disclosed, etc
Allowing the buyer full/restricted access to the sellers
books and records
Not doing anything that would make the sellers
representations and warranties untrue
C



Covenants may also include an undertaking that the sellers will not allow a change in the board of
directors until closing of the transaction, unless relating to the appointment of directors nominated by
the buyer.
Deal Conditions Cont.
Condition Precedent- Its an essential component of an agreement from the buyers perspective in so far as
it protects the interests of the buyer by putting certain conditions on the seller. Conditions precedent varies
from transaction to transaction depending on the facts and circumstances of each case. The most essential
condition precedent would be providing clear and marketable title to the assets/shares of the target
company.
Foreign investment approval- This is a determining factor in structuring any transaction under the
countrys regulatory regime.
Regulatory approvals-
Obtaining approval of Competition Office
Corporate authorization
No Objection Certificates
Due Diligence Results
Termination- If there will be a period of time between signing of the acquisition agreement and closing, the
parties will need to agree on certain rights pursuant to which a party may terminate the acquisition
agreement prior to closing. Parties generally include the following termination rights in merger & acquisition
agreement-
Mutual Agreement
Breach of R&W or failure to perform a covenant
Due to legal Impediment
Miscellaneous provisions-
Indemnification- The parties generally indemnify each other for all losses, claims, damages, costs and expenses
incurred as a result of acts or misrepresentation or any breach, inaccuracy or incompleteness of any condition set
forth in the agreement or any other related documents.
Deal Conditions Cont.
Termination of the agreement and/or completion of the acquisition, the indemnification
provisions survive and continue to protect the parties for any wrongs that may have been
committed prior to the closing or termination.
Dispute Resolution -The common approach adopted in devising a dispute resolution
system is to agree on a neutral location for conducting arbitration to quell any
inhibitions of parties of obtaining home advantage. The substantive law of the contract
is predominantly law of land and occasionally that of New York.
Working of these provision- Acquisition agreements provide that, as a condition to closing,
the representations and warranties of the parties must be true and correct at the closing, and
that the pre-closing covenants have been performed or fulfilled prior to the closing. This may
be confirmed by each party delivering a written certificate to that effect to the other party.
They work in a collaborative way by providing guidelines to the parties and imposing
restriction and defining the acquisitions conditions through a formal campaigning.

II. Condition favouring Buyer and
Seller
The acquisition agreement contains conditions to each partys obligation to close the transaction. If any one
of the conditions is not satisfied as of the contemplated closing date the party for whom the condition is
included in the acquisition agreement may decline to proceed with the transaction (without incurring liability
to the other party).There is an obvious tension between the interest of the buyer and the interest of the seller
in the negotiating the closing conditions. The buyers primary interest is to preserving the benefit of its
bargain. It does not want to be required to close a transaction if,
For example, there has been a material adverse change in the target business between signing and closing.
In contrast, the primary interest is in limiting the buyers ability to refuse to close a transaction once it is
signed an announced. The target concerned that it will be viewed as damaged goods if the buyer walks
away from signed transaction.


Buyers favourable conditions Sellers favourable conditions
Material adverse change in the business, capitalisation, assets,
liability etc.
Performance of covenants-All of the covenants and obligation
that the acquired corporation are required to comply with or to
perform at or prior to the closing shall have been complied with
and performed in all material respects.

Accuracy of representation- The buyers version of this
condition tests the accuracy of the representation at two points
in time-
I. As the signing of the agreement- the when made
standard
II. As of the closing- the bring down standard
The buyer will desire to retain the when made and bring down
standard because it encourages care in the preparation of the
sellers disclosure schedule.
Consents- All consents indentified in part 6.3 of the disclosure
schedule shall have been obtained and shall be in full force and
effect.
Matters covered by operative Indemnification provision-
I. Breach of representation and warranties will brought down
to closing.
II. Specific matters discovered during the buyers due
diligence investigation of the target will also include breach.
No Material Adverse Effect- Between the date of this agreement
and closing there shall not been any MAC on the business,
result of operations or financial condition of the acquired
corporation.

II. Conditions cont.
Buyers conditions Sellers Conditions
Liability cap- Different liability cap might apply to different types
of liabilities (e.g. one cap might apply to all representation
except for intellectual property, capitalisation and deal- related
representation which have higher cap )

Shareholder approval- The principal terms of the merger and
the others matters referred to in section 5.2 shall have been
duly approved by the affirmative vote of the shareholders of the
company in accordance with applicable legal requirements and
the companys incorporation documents.

Effect of tax benefits/costs- Damages should not give specific
effect to tax benefits and tax costs because buyer has already
agreed to substantial limitations on its indemnification rights
No restraints- Any order or injunction preventing the
consummation of the merger shall have been issued by any
court of the competent court and remain in effect, and there
shall not be nay legal requirement enacted to the merger that
makes consumption of merger illegal.
Exclusivity- the right of each party hereto assert indemnification
claims and receive indemnification payment shall be the sole
and exclusive right and remedy of exercisable by such party
with respect to any breach by the other party hereto of any
representation or warranty.

Indemnification by seller- As per section 11 seller indemnify
purchaser against any damages that he occurs during one year
period commencing on the closing date as direct result of any
breach.

Waiver of consequential damages- Absent fraud or willful
misconduct, no person shall be entitled to recover
consequential or punitive damages with respect to any breach
of any representation or warrant under this agreement
Deductible amount- Only cumulative amount of damage of the
warranties incurred direct result of breach otherwise not
required to make any indemnification payment.

III. Strategic analysis of the deal
Diversification- This deal provide diversification to Amgen access to a rapidly
expanding cancer-drug market with a new product that offers sure revenue.
Strategic view-Onyx was single product company which got approval from
U.S.FDA for a rare blood cancer drug and estimated $3 billion revenue by 2021.
Competitive Advantage over others to Amgen- It take a decade to develop a
new drug and millions of dollars to develop new medicine. Thus by this deal
Amgen got approved medicine which has expected to provide 250% growth by
2019 to them.
Amgen filled the hole in the oncology market by acquiring Onyx. Amgen record in
track and quality and reliability will bring more reliability to the Onyx portfolio.
Quick wins following post merger integration- After the merger of the companies
the Amgen prices rises at 10%.
Long term strategic and operational improvements see
Added growth and capital will help Amgen to provide more dividends
IV. Valuation of the Deal
The price that is ultimately paid is a function of the value of the asset and the strategic intent
of the buyers and sellers, said Andrew Hindman, a former Onyx executive and the chief
executive of Tobira Therapeutics. As long as there is a firm basis for paying a premium,
then valuations can go wherever they're deemed to go. At present we value the Onyx at $7.8
billion which seem very reasonable as the Amgen plays the bet without knowing the drug
trial test result of the Onyx medicine.
Onyx does not holds the global rights to Kyprolis . The orphan drug has exclusivity in the US
until July of 2019 and Onyx holds patents extending till 2025 only which is very short period
to recover huge growth.
Amgen has also to deal with copycat drugs from which provide the drugs at cheap prices and
alsos have to maintain the price of their drug.

V. Market response
Amgen look pretty
well after the it
barrelled up almost
10% that could
reignite the
company's growth.


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ONYX
AMGEN
NASDAQ
V. Market response cont.
Short tern growth- it is predicted that Amgen will be profit more
from the short term growth around 250% in the coming 5 years
and there will be steady growth around 5-6%

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AMGEN
Appendix 1.
c Years Ending December 31
Actual |------------------------------------------------------------------------------------------ Forecast ----------------------------------------------------------------------------------------|
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Total revenue $362 $471 $659 $988 $1,581 $5,534 $11,069 $21,030 $37,854 $56,781 $73,816
Cost of Goods Sold 2 5 7 10 16 55 111 210 379 568 738
Gross profit 360 466 652 978 1,565 5,479 10,958 20,820 37,475 56,213 73,078
Selling, general and administrative expenses 70 94 132 198 316 1,107 2,214 4,206 7,571 11,356 14,763
Earnings before interest, taxes, depr. & amort. (EBITDA) 290 372 520 780 1,249 4,372 8,744 16,614 29,904 44,857 58,315
Depreciation and amortization 26 47 66 99 474 5,534 4,427 6,309 7,571 5,678 7,382
Earnings before Interest and taxes (EBIT) 264 325 454 681 775 -1,162 4,317 10,305 22,333 39,179 50,933
Available tax-loss carryforwards 0 0 0 0 0 0 -1,162 0 0 0 0
Net taxable earnings 264 325 454 681 775 0 3,155 10,305 22,333 39,179 50,933

Federal and State Income Taxes 106 130 182 273 310 0 1,262 4,122 8,933 15,672 20,373
Net Operating Profit After-Tax (NOPAT) 158 195 272 409 465 -1,162 3,055 6,183 13,400 23,508 30,560
Add back depreciation and amortization 26 47 66 99 474 5,534 4,427 6,309 7,571 5,678 7,382
Subtract Capital Expenditures -10 -12 -13 -15 -17 -20 -23 -27 -31 -35 -40
Subtract New Net Working Capital 21 34 56 95 277 332 498 841 946 852
Free Cash Flow $95 $251 $359 $549 $1,017 $4,629 $7,791 $12,964 $21,782 $30,097 $38,753
Terminal value, 2011 $2,71,271
Present Value of Free Cash Flows @ 20% 23 28 36 55 209 293 406 568 654 5,616
Total Present Value of Company Operations $7,888
Appendix 2
Forecasting Variables:
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Revenue growth factor 30% 40% 50% 60% 250% 100% 90% 80% 50% 30%
Expected gross profit margin 99% 99% 99% 99% 99% 99% 99% 99% 99% 99%
S, G, & A expense % of revenue 20% 20% 20% 20% 20% 20% 20% 20% 20% 20%
Depr. & Amort. % of revenue 10% 10% 10% 30% 100% 40% 30% 20% 10% 10%
Capital expenditure growth factor 15% 15% 15% 15% 15% 15% 15% 15% 15% 15%
Net working capital to sales ratio 19% 18% 17% 16% 7% 6% 5% 5% 5% 5%

Income tax rate 40% 40%
Assumed long-term sustainable growth rate 5% per year after 2011 5%
Discount rate 20% 20%

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Valuation Model Outputs:
Gross profit margin 99% 99% 99% 99% 99% 99% 99% 99% 99% 99%
Net operating profit margin 41% 41% 41% 29% -21% 28% 29% 35% 41% 41%
Free cash flow ($ mil) $250.9 $359.0 $548.5 ###### $4,628.9 $7,790.5 ######## $21,781.6 $30,096.9 $38,753.0
Terminal value ($ mil) $2,71,271.0

PV of Company Operations ($ mil) $7,888.0