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CONNAUGHT "CONSIDERING" 50-50 MERGER WITH INSTITUT MERIEUX

Executive Summary

CONNAUGHT "CONSIDERING" 50-50 MERGER WITH INSTITUT MERIEUX following the French vaccine maker's second bid for Connaught. The 50-50 merger proposal, received by Connaught on March 3, does not include the contract research business, Bio-Research Labs, which would be spun-off to Connaught shareholders if the deal is consummated. The new venture would be a Dutch firm called Merieux-Connaught N.V. Connaught reported in a March 6 release that its directors "have met over the weekend to consider these proposals and have authorized management to seek further clarification from Institut Merieux on several issues." The Toronto-based vaccine manufacturer said it would make "a further announcement . . . when these issues have been settled." The merger would be subject to shareholder and court approval, Connaught said. Institut Merieux is taking a friendlier tack in its pursuit of Connaught this time around after failing in an unfriendly bid last April. At that time, Institut Merieux and the Quebec provincial government pension fund, Caisse de Depot et Placement du Quebec, which together hold nearly one-third of Connaught, waged an unfriendly assault on Connaught with a $32 (Canadian) per share bid for approximately 20% of outstanding Connaught shares ("The Pink Sheet" April 18, p. 6). With Institut Merieux holding 12.6% of Connaught and Caisse holding approximately 20%, a successful tender offer would have given Institut Merieux majority control of Connaught without having to bid for all of the Canadian company. However, the takeover was rejected by the Toronto and Ontario securities exchanges, which ruled that the bid was unfair to the nearly 50% of Connaught shareholders not tendering their shares. A merger of the two companies would create a new company with worldwide health care product sales of nearly $500 mil. and a strong position in the worldwide vaccine market. Connaught's sales in 1988 totaled $192.5 mil. (Canadian), up slightly over 1987, while net earnings grew 36.7% to $29.3 mil. (Canadian). R&D spending in 1988 reached $28 mil. Institut Merieux reported sales of $351.9 mil. (Canadian) last year and R&D expenditures of $52 mil. (Canadian). The merger would also greatly expand Institut Merieux's access to the U.S. market. The French firm currently markets four vaccines in the U.S. through a 15-person sales force. Merieux, a majority owned subsidiary of Rhone Poulenc, manufactures its vaccines at a plant in Lyons, France. Connaught manufactures and markets a line of vaccines in the U.S. and maintains a sales force of approximately 100 reps in this country.

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