MERGER BY TAKEOVER OF VL FINANCE SAS BY SARTORIUS STEDIM BIOTECH SA

Transcription

1 MERGER BY TAKEOVER OF VL FINANCE SAS BY SARTORIUS STEDIM BIOTECH SA REPORT OF THE MERGER AUDITOR ON THE CONSIDERATION FOR THE CONTRIBUTIONS

2 MERGER AUDITOR S REPORT ON THE CONSIDERATION FOR THE CONTRIBUTIONS AS PART OF THE MERGER BY TAKEOVER OF VL FINANCE SAS BY SARTORIUS STEDIM BIOTECH SA To the sole shareholder of VL FINANCE SAS Avenue de Jouques Zone Industrielle Les Paluds Aubagne To the shareholders of SARTORIUS STEDIM BIOTECH SA Avenue de Jouques Zone Industrielle des Paluds Aubagne In accordance with the mission entrusted to us by order of the President of the Commercial Court of Marseille on 7 January 2016 as part of the proposed merger of the companies SARTORIUS STEDIM BIOTECH and VL FINANCE by takeover of the second by the first, we have prepared this report required by Article L of the French commercial code on the consideration for the, with the understanding that our assessment of the value of the is the subject of a separate report. The consideration for the results from the exchange ratio that was settled upon in the draft merger treaty signed by the representatives of the companies concerned dated 18 February It is our responsibility to express an opinion on the fairness of the exchange ratio. To that end, we implemented the due diligence measures that we deemed necessary with regard to the professional doctrine of the French national board of auditors relating to this mission. These due diligence measures are intended to verify that the relative value attributed to the shares of the companies involved in the transaction are relevant and to analyse the positioning of the exchange ratio in relation to the values deemed relevant. Given that our mission ended with the filing of the report, we have no responsibility to update this report in order to take account of facts and circumstances subsequent to the date of its signing. At no time did we find ourselves in one of the cases of incompatibility, prohibition, and disqualification provided for by law. Our findings and conclusions are presented below as follows: I. Presentation of the transaction and description of the II. Due diligence measures performed III. Assessment of the relative values attributed to the shares of the acquired company and the acquiring company as well as the fairness of the proposed exchange ratio CBP Audit & Associés Accounting and Auditing Firm A simplified joint stock company (SAS) with a capital of 83,500 euros, member of the board of accountants of the Region of Marseille and the institute of Aix-en-Provence Registered office: 2 boulevard de Gabès Marseille Secondary auditing office: 3 Quai Kléber Strasbourg Tel.: / Fax: SIRET: / APE Code: 6920Z

3 I. Presentation of the transaction and description of the The companies participating in the transaction described below belong to the SARTORIUS AG Group, one of the leading suppliers of equipment and services for the process of development, quality assurance, and production particularly in the biopharmaceutical, chemical, and agri-food industries worldwide. I.1. Companies involved Acquiring company SARTORIUS STEDIM BIOTECH SA: SARTORIUS STEDIM BIOTECH is a public limited company (SA) with a capital of 15,367,238 euros composed of 15,367,238 shares with a nominal value of 1 euro each, all in the same category, fully subscribed and paid up. The registered office is located at Avenue de Jouques, Zone Industrielle Les Paluds, Aubagne. It is registered with the trade and companies register of Marseille under number The shares of SARTORIUS STEDIM BIOTECH are admitted to trading on the EURONEXT PARIS market Compartment A (ISIN code: FR ). SARTORIUS STEDIM BIOTECH s corporate purpose, both in France and abroad, is: - The acquisition, optimisation, administration, and management of equity shares, securities, voting rights, and other ownership rights in all companies regardless of its activity, by all means, including by way of creation of new companies, contribution in kind of all ownership rights, subscription rights, merger, purchases of securities and other ownership rights, or formation of companies; - The direction, facilitation, and coordination of the activity of its subsidiaries and holdings; where appropriate, the provision of all administrative, financial, accounting, or legal services to these entities, the provision of all opinions and advice, or the commissioning of all studies or research necessary for their development and growth; - And more generally, all operations involving real and other property, financial operations, or civil operations relating directly or indirectly to this subject or to any other similar or related subject or of a nature likely to directly or indirectly promote the goal pursued by the company, its extension, or its development. The company closes its annual accounts on 31 December. Acquired company VL FINANCE SAS: VL FINANCE is a simplified joint stock company (SAS) with a capital of 4,614,710 euros, divided into 461,471 shares with a nominal value of ten euros each, all in the same category, fully subscribed and paid up. Page 3

4 The registered office is located at Avenue de Jouques, Zone Industrielle Les Paluds, Aubagne. It is registered with the trade and companies register of Marseille under number VL FINANCE does not make public offerings. VL FINANCE s corporate purpose is: - The acquisition of equity interest or control of all companies, organisations, business combinations, or undertakings by way of purchase, contribution, subscription, or any other manner; - All information technology, management, and administration services for its subsidiaries or for the benefit of companies in which it has interests; - And generally, carry out all commercial, industrial, or financial operations or operations involving real or other property, relating in whole or in part to the company s purpose, or to all similar, related, or connected purposes, or that would be of a nature to facilitate or develop its achievement; - More particularly, the company s purpose, both in France and abroad, is to acquire any equity interest, whether majority or not, in industrial or commercial companies having a direct or indirect relationship with the sector involved in the manufacture or sale of medical or paramedical equipment or equipment or products requiring draconian conditions of sterility or microbial safety and, more generally, conditions of manufacture in controlled ambient conditions, dispose of them and/or reap the benefits of these equity interests, and contribute to their development by providing any advice or financial assistance that it deems appropriate; - And more generally, all operations involving real or other property and financial operations that may relate directly or indirectly to the activities below or that would be likely to facilitate their accomplishment; - And, if needed, all industrial and commercial operations relating to: - The creation, acquisition, rental, or lease management of all businesses, factories, and workshops relating to any of the activities specified above; - The takeover, acquisition, exploitation, or disposal of all processes, patents, and intellectual property rights concerning such activities. The company closes its annual accounts on 31 December. I.2. Relationships between the companies Capital tie VL FINANCE holds 1,642,095 shares of the 15,367,238 shares comprising the share capital of SARTORIUS STEDIM BIOTECH, i.e., 10.69% of its capital and 12.16% of its voting rights. SARTORIUS STEDIM BIOTECH holds no equity interest in the capital of VL FINANCE. Page 4

5 SARTORIUS STEDIM BIOTECH and VL FINANCE are both controlled by SARTORIUS AG, a German company whose registered office is located at Weender Landstrasse , Göttingen, Germany. Executives and officers in common The two companies have an executive in common: Mr Joachim Kreuzburg, Chairman of VL FINANCE and also Chairman of the Board of Directors and Managing Director of SARTORIUS STEDIM BIOTECH. I.3. Reasons for and goal of the merger The transaction consists in a merger by takeover of VL FINANCE by SARTORIUS STEDIM BIOTECH. The purpose of this transaction is to simplify and streamline the structure of the SARTORIUS AG Group. Thus, SARTORIUS AG s equity interests are currently as follows: - SARTORIUS AG directly holds 100% of the share capital of VL FINANCE; - SARTORIUS AG also holds 74.36% of the share capital of SARTORIUS STEDIM BIOTECH: 63.67% of the share capital of SARTORIUS STEDIM BIOTECH directly; 10.69% of the share capital indirectly through VL FINANCE. In addition, VL FINANCE s sole activity is a holding activity, and it now holds only a 10.69% interest in the share capital of SARTORIUS STEDIM BIOTECH. Its existence is therefore no longer justified. The proposed merger would thus make it possible to reorganise and simplify the holding structure of SARTORIUS STEDIM BIOTECH by SARTORIUS AG and eliminate the financing costs specific to VL FINANCE. I.4. Bases of the merger Reference accounts The merger shall be carried out with retroactive effect, from an accounting and tax point of view, to 1 January From a legal point of view, the merger shall take effect on the date when it is definitively adopted by the extraordinary general meeting of SARTORIUS STEDIM BIOTECH and by the sole shareholder of VL FINANCE, i.e., on 5 April The terms and conditions of the merger by takeover of VL FINANCE by SARTORIUS STEDIM BIOTECH are based on the annual financial statements of the two companies as at 31 December 2015, the closing date of their most recent financial year. The annual financial statements of SARTORIUS STEDIM BIOTECH were approved by the board of directors on 18 February The general meeting to approve the financial statements will take place on 5 April Page 5

6 The annual financial statements of VL FINANCE were approved by the Chairman on 18 February The date of approval of the financial statements by the sole shareholder is scheduled for 5 April Method used for valuation of the Given that the proposed transaction consists in a reorganisation transaction internal to the SARTORIUS AG Group, the assets and liabilities that make up VL FINANCE s shall be transferred to SARTORIUS STEDIM BIOTECH and shall therefore be recorded in its accounts at the net book value as indicated on VL FINANCE s approved annual financial statements as at 31 December This valuation of the at the net book value results from the application of CRC regulation of 4 May 2004 on the accounting treatment of mergers and similar transactions, given the fact, in particular, that the participating companies are, both before and after the completion of the transaction, under the common control of SARTORIUS AG. I.5. Ownership, enjoyment, and conditions The terms of the transaction detailed in the draft merger treaty can be summarised as follows: - the date of final completion of the transaction is defined as being the day when the merger has become final as a result of the fulfilment of the conditions precedent stipulated in the draft merger treaty and as a result of the decisions of the sole shareholder of VL FINANCE, the acquired company, and the Extraordinary General Meeting of SARTORIUS STEDIM BIOTECH (acquiring company), scheduled for 5 April 2016; - However, the parties have set the date of enjoyment of all the acquired company s assets and liabilities by the acquiring company retroactively to 1 January The results of transactions performed by the acquired company VL FINANCE as from 1 January 2016 and until the date of final completion of the merger shall therefore be exclusively for the benefit of the acquiring company SARTORIUS STEDIM BIOTECH, which shall incorporate the said transactions into its accounts; - From a tax point of view, with respect to corporate taxes, the transaction is placed under the tax regime provided for in Article 210 A of the French general tax code; - With respect to VAT, the transaction is placed under the regime provided for by Article 257 bis of the French general tax code, which provides for exemption from VAT for deliveries of goods and services between persons and entities liable for VAT and occurring as part of the transfer of a totality of assets or part thereof. In addition, the acquiring company is deemed to continue the person of the acquired company; - For tax purposes, the merger by takeover of VL FINANCE by SARTORIUS STEDIM BIOTECH shall be retroactive to 1 January 2016, also for accounting purposes. The completion of the merger, the consequential capital increase of the acquiring company, and the dissolution of the acquired company shall be conditional on: Page 6

7 - The registration by the AMF (French financial markets authority) of the document referred to in Article of the AMF s general regulation; - The approval by SARTORIUS AG, sole shareholder of the Acquired Company, of the merger and early dissolution without liquidation of VL FINANCE; and - The approval by the combined general meeting of the acquiring company (i) of the merger as well as the capital increase, a consequence of the merger, and (ii) the reduction of the capital of the acquiring company in order to cancel the treasury shares, a consequence of the takeover of the acquired company s assets. I.6. Description of the The assets and liabilities contributed by VL FINANCE retain their net book value as at 31 December The table below summarises the components of the as at this date: CONTRIBUTED ASSETS IN Other equity interests Other long-term investments Other receivables Cash and cash equivalents Contributed assets LIABILITIES TAKEN ON IN Borrowings and financial debts Trade payables Taxes and social security due 0 Liabilities taken on CONTRIBUTED NET ASSETS IN I.7. Consideration for the and capital increase The consideration for the, determined through the exchange ratio of 71 shares of SARTORIUS STEDIM BIOTECH (acquiring company) for 20 shares of VL FINANCE (acquired company), leads to the creation of 1,638,222 new shares in favour of Sartorius AG, sole shareholder of the acquired company, VL FINANCE. Given that the nominal value of the SARTORIUS STEDIM BIOTECH shares is 1, the capital increase amounts to 1,638,222. On the basis of the draft merger treaty, the difference between the value of the assets received in respect of the merger, i.e., 4,449,850, and the amount of the capital increase of 1,638,222 is 2,811,628. This amount constitutes the merger premium to be carried in the acquiring company s liabilities and to which the rights of the old and new shareholders shall relate. Page 7

8 II. Due diligence measures performed We implemented the due diligence measures that we deemed necessary in accordance with the professional doctrine of the national institute of auditors related to this type of mission for the purpose of: - Verifying the relevance of the relative values attributed to the shares of the companies participating in the transaction; - Assessing the fairness of the proposed consideration. The purpose of our mission is to provide clarification to the sole shareholder of VL FINANCE and the shareholders of SARTORIUS STEDIM BIOTECH on the relevance of the relative values applied. It is therefore neither an audit mission nor a limited review mission and cannot be considered a due diligence mission and does not include all the work necessary for that type of intervention. This mission ends with the filing of our report; it is not our responsibility to follow up on any subsequent events possibly occurring between the date of our report and the date of the general meetings deciding on the transaction. Our work primarily consisted in: - Familiarisation with SARTORIUS STEDIM BIOTECH and VL FINANCE and their environment; - Interviews with the persons in charge of the transaction, particularly the financial and legal department of the SARTORIUS Group, in order to understand the context in which it operates and to analyse the envisaged accounting, legal, and tax arrangements. - Familiarisation with the draft merger treaty; - Familiarisation with the reports of the statutory auditors of SARTORIUS STEDIM BIOTECH and VL FINANCE as at 31 December 2014, which indicate unreserved certification; - An interview with the financial department of SARTORIUS STEDIM BIOTECH and VL FINANCE and their statutory auditors in order to validate with them the quality of the financial statements and potential areas of risk and to orally review the conclusions of the audit work on the financial statements as at 31 December 2015; - Familiarisation with the methods used to determine the exchange parity; - An analysis of the valuation approaches implemented: analysis of the criteria used in the application of these methods, verification of their proper application, consistency, and reasonableness; - Consideration of the results of our work carried out as part of the assessment of the value of the, as described in our report on the value of the ; - Confirmation with the executives of each of the companies of the absence of post-close events likely to call into question the proposed consideration; - Obtaining a representation letter from each of the executives of SARTORIUS STEDIM BIOTECH and VL FINANCE. Page 8

9 III. Assessment of the relative values attributed to the shares of the acquired company and the acquiring company as well as the fairness of the proposed exchange ratio III.1. Valuation methods adopted and analysis of their relevance Valuation of SARTORIUS STEDIM BIOTECH s securities The valuation of SARTORIUS STEDIM BIOTECH was determined using a multi-criteria approach based on the envisaged usual and appropriate valuation methods whilst taking into account the characteristics of the company. SARTORIUS STEDIM BIOTECH was thus valued on the basis of the average share price, as the main method, and on the basis of the Discounted Cash Flows for informational purposes in order to confirm the results obtained by the first method. Average stock price: We find the average stock price method to be appropriate, as the company is admitted to trading on the EURONEXT Paris market - Compartment A. We analysed the relevance of the period chosen for the analysis of the stock prices. Management thus determined the average of the prices, weighted for the daily volumes traded, over various durations: 12 months, 6 months, 3 months, 1 month, and 20 days. Given the company s environment, its activity, and significant events that may have had an impact on the variation of the price, Management concluded that the durations between three months and the last 20 trading days were relevant and consistent. An average price of 330 was thus adopted. WEIGHT AVERAGE PRICE OF THE SARTORIUS STEDIM BIOTECH SHARE WAP over 1 year 264,75 WAP over 6 months 306,40 WAP over 3 months 328,35 WAP over 1 month 331,22 WAP over 1 20 days 333,47 This analysis does not call for any comments from us and appears to be appropriate in view of the evolution of the activity and the significant events of financial year We also ensured that the stock price was consistent between the date of calculation by Management and the date of preparation of our report. We did not identify any significant differences, outside of the phenomenon of announcement of the 2015 results. Management also confirmed to us that no major event should call this average into question between the date of our report and the effective date of the merger. The unit value of the SARTORIUS STEDIM BIOTECH share valued according to the average stock price method at 330 does not call for any comments from us. Page 9

10 Discounted cash flows (DCF) The DCF method consists in determining the enterprise value by discounting all of the company s projected available cash flows at the weighted average cost of capital. The DCF method, applied to SARTORIUS STEDIM BIOTECH, takes account of the following assumptions: - Cash flow forecasts based on past results and growth forecasts approved by the management of SARTORIUS STEDIM BIOTECH over a period of three to five years; - a growth rate to infinity of 2.5% taking into account the significant growth rates expected for the biopharmaceutical market of SARTORIUS STEDIM BIOTECH; - a discount rate of 6.1%. We made sure of: - the correct implementation of the DCF method; - the consistency of the forecast data used with the latest annual financial statements, our discussions with Management on the growth prospects, and the data from market growth analyses; - the reasonableness and appropriateness of the applied parameters inherent to the DCF method and particularly the discount rate. The relevance of using the DCF method and the analysis of the various parameters do not call for any comments from us. The enterprise value determined by the DCF method according to the elements defined above is 5,013 M. After taking into account the net debt, the value of one SARTORIUS STEDIM BIOTECH share is Taking into account the forecast parameters and assumptions used in the DCF method, Management then conducted a sensitivity analysis of the value of SARTORIUS STEDIM BIOTECH with a WACC of - /+1 point and long-term growth reduced to 1.5% and increased to 3.5%. The value of the SARTORIUS STEDIM BIOTECH share thus lies within a range between 246 and 451 with a median value of 344. WACC Growth Normative Value of the SSB share 245,98 451,02 431,96 256,26 321,79 The DCF method thus confirms the value of the SARTORIUS STEDIM BIOTECH share established at 330 by the average stock price method. Page 10

11 Management did not apply the following methods for the valuation of the SARTORIUS STEDIM BIOTECH securities: - the net assets methods (net book assets and revalued net assets) are not representative of the intrinsic value of the company represented by its rapidly growing activity; - the comparables methods (comparable transactions and market comparables) are not relevant because of the context of internal reorganisation of the merger; - the dividend discounting method is not appropriate because of the uncertainties related to the future dividend distribution policy. We have no comments regarding the lack of consideration of these methods. Valuation of the VL FINANCE securities Because of its role as a holding company holding only shares of SARTORIUS STEDIM BIOTECH, VL FINANCE was valued according to the revalued net assets method. The net book value of the SARTORIUS STEDIM BIOTECH securities recorded in the assets on the annual financial statements closed as at 31 December 2015 was thus replaced with the actual value of the securities determined according to the average stock price method defined above at 330. The value of the VL FINANCE share is thus 1, We have no comments to make regarding the choice of the valuation method or the calculation of this valuation. III.2. Summary and consideration for the After applying the rounding rules, the exchange ratio is fixed at 71 SARTORIUS STEDIM BIOTECH shares for 20 VL FINANCE shares. in Average stock price method Acquiring company valuation (SSB) ,367,238 shares valued at 330 Existing number of shares Valuation per share 330,00 Acquired company valuation ,471 shares valued at 1, Number of shares to be created rounded to Contributed net assets Nominal value of shares 1,0 Capital increase Merger premium Page 11

12 Thus, in consideration of the contribution made by VL FINANCE of 4,449,850, 1,638,222 SARTORIUS STEDIM BIOTECH shares shall be allocated to the sole shareholder, SARTORIUS AG. Given that the nominal value of the SARTORIUS STEDIM BIOTECH shares is 1 euro, the amount of the capital increase shall be 1,638,222. The surplus equity, amounting to 2,811,628, shall be carried on the liabilities side of the acquiring company s balance sheet in a merger premium account. We ensured that there were no significant events after 31 December 2015 likely to call into question the parity of 71 SARTORIUS STEDIM BIOTECH shares for 20 VL FINANCE shares. Given that VL FINANCE holds a 10.69% equity interest in SARTORIUS STEDIM BIOTECH, the merger shall have the effect of transferring 1,642,095 of its own actions to the acquiring company. Accordingly, under the condition precedent of the actual completion of the merger, SARTORIUS STEDIM BIOTECH shall cancel the 1,642,095 shares contributed by VL FINANCE for the merger by way of capital reduction not motivated by losses. The difference between the nominal value of the securities subject of the capital reduction ( 1,642,095) and their net book value in the assets of VL FINANCE ( 4,485,395), i.e., 2,843,300, shall be posted as a priority to the merger premium in the amount of 2,811,628. The balance of 31,672 shall be posted to retained earnings. IV. Conclusion On the basis of our work and as at the date of this report, our opinion is that the exchange ratio of 71 SARTORIUS STEDIM BIOTECH shares for 20 VL FINANCE shares agreed upon between the parties and resulting in the issuance of 1,638,222 new shares of SARTORIUS STEDIM BIOTECH is fair. Marseille, 4 March 2016 The Merger Auditor CBP Audit & Associés Christine Blanc-Patin Signed on French original report Page 12