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DEAL OF A LIFETIME

DEAL OF A LIFETIME

OC’s Charles Ruck Was Right in the Middle of an $18B Acquisition

By RAJIV VYAS

It started as a vacation fill-in assignment.

In April, Gary Olson, senior partner at Latham & Watkins, a Los Angeles-based law firm, was leaving for a four-month trip to Europe. He called in Charles Ruck, the head of the mergers and acquisitions practice at the firm’s Orange County office and asked him to look after a top client: Amgen Inc.

“‘You are in charge,’ he told me,” Ruck recalled. “‘Don’t screw it up.'”

Olson is Latham’s relationship person for Amgen. Ruck was picked to fill in because he had worked with the Thousand Oaks-based biotechnology company on a couple of acquisitions.

A few weeks later, Amgen called in Ruck and asked him to look into Immunex Corp., a company Amgen was looking to acquire.

Amgen is known for products such as Epogen, a biomedicine for treatment of anemia in patients on dialysis, and Kineret for the treatment of signs and symptoms of rheumatoid arthritis. Immunex is another large biotech company that makes drugs for treating rheumatoid arthritis and increasing the body’s white blood cell count.

“They called me and said they were comfortable working with me,” recalled Ruck.

Ruck, 34, worked on the deal for the next nine months. In December, Amgen announced the planned acquisition of Immunex,an $18 billion deal. It turned out to be the largest deal Ruck has done in his career and one of the largest transactions that Latham has done as the buyer’s representative.

A year and a half ago, Ruck had worked with Amgen in its buy of Kinetix Pharma-ceuticals Inc., a Med-ford, Mass.-based bio-engineering company. The deal was valued at around $200 million.

But Ruck said while he and his firm have a longstanding relationship with Amgen, getting the Immunex transaction wasn’t easy. He and other partners had to fight tooth and nail with New York law firms that specialize in M & A; projects.

“It was a significant transaction for our firm,” Ruck said. “Deal sizes over a billion dollars are few and far between and many of those have traditionally gone to large New York firms.”

The large deals indeed are difficult, particularly when the economy is in the doldrums and companies are shying away from risk. Last year, the largest M & A; deal in OC was valued at $152 million, down more than 90% from the $2 billion dollar deals seen in 2000, when the stock market was roaring and companies were on buying binges.

Ruck, along with 10 other lawyers from the OC office and another 30 lawyers from Latham offices elsewhere, worked on the Amgen-Immunex deal. Ruck spearheaded le-gal operations from his Costa Mesa office near the Performing Arts Center. From spring until December, Ruck was busy attending board meetings at Amgen, drafting and negotiating the purchase agreement, and coordinating the various pieces to bring the deal together.

Ruck has worked on some big deals in the past, including the public offering of Newport Beach Pacific Investment Manage-ment Co., and later the sale of the bond fund manager to Germany’s Allianz AG. He also handled the buy of the Pebble Beach golf course by Clint Eastwood, Arnold Palmer and Peter Ueberroth’s The Contrarian Group from Japanese investors.

But the Amgen deal is by far his biggest and one that could be a life-changing event for Ruck.

“This deal gives me the credibility in the circle of M & A; lawyers that very few in California, let alone in the country, play,” he said.

The Amgen-Immunex deal was tough from the word go, Ruck said.

One of the biggest hurdles was winning over the largest shareholder of Immunex: American Home Products Corp., now Wyeth, which held a 40% stake in Immunex.

“They (Wyeth) had a number of powerful corporate governance issues, two people on the board and also had a veto right on important matters,” Ruck said.

So instead of convincing just the Immunex board, Amgen’s management and Ruck faced the challenge of convincing officers and lawyers at Wyeth about the viability of the deal.

“It was really a three-party negotiation,” he said.

Immunex also is involved in complicated litigation including a suit brought by the federal government. Ruck and other lawyers had to analyze the effects the legal actions could have on the merged entity.

In addition, they had to look at the possibility of antitrust litigation. When two of the biggest companies in an industry are planning to merge, it raises eyebrows at the Federal Trade Commission.

“We had five people working on the antitrust litigation and we are still working on settling the issue” with the commission, Ruck said.

Once those issues were dealt with, it was time for due diligence. Immunex is setting up a $1 billion facility in Seattle. Ruck said that the $1 billion investment was done via a synthetic lease transaction, a form of off-balance-sheet financing.

“We paid careful attention to this financing vehicle,” Ruck said.

It appears Immunex shared those concerns because in its most recent annual report the synthetic lease was reflected as an on-balance-sheet liability.

The other major issue was tax structuring. If the Immunex transaction was treated as a normal M & A; deal, then shareholders of Immunex would have ended up paying capital gains tax on the shares of Amgen they received. The chairman of the tax group from Latham’s Los Angeles office and other experts from the New York office were able to structure the deal to minimize tax liabilities.

“The deal could have broken apart or failed if Latham’s lawyers could not have achieved those (tax) results,” Ruck said.

Finally, Ruck and his team had to arrange financing. The buyout of Immunex involved a share swap and some cash. Although Amgen had more than $2 billion in cash at the time, it was judged better to arrange some debt financing to prevent a cash drain.

“We owed $2 billion,” for the cash payment portion, Ruck said. “We had been talking with Merrill Lynch for more than six months about doing a debt financing deal.”

In January, “Merrill indicated that interest rates could start going up again. So we got our team together and prepared the documents in a week,” Ruck said.

In late February, Amgen made a $3 billion convertible bond offering, with Merrill purchasing the entire amount and reselling it to its clients. It was one of the three largest transactions of this type that Merrill had ever done, according to Ruck.

Having worked long hours during these nine months or so, Ruck took off on vacation for couple of weeks to France with his wife once the deal was announced.

But the Amgen-Immunex deal isn’t complete. The shareholders of both the companies, including Wyeth, still have to approve the deal. Ruck said that he is comfortable about getting shareholders approval

He’s also optimistic about a go-ahead from the FTC.

“It is not whether they would block the deal, but to see that what we will do to ensure that there is competition in the marketplace,” he said.

But Amgen is not the only deal that is keeping Latham’s 30 or so corporate lawyers busy in Orange County. The office is handling the spinoff of Advance Medical Optics Inc. from Irvine-based Allergan Inc. And in the past year, the office has handled the public offering filing of Aderis Pharmaceuticals Inc. and the sale by Conexant Systems Inc. of Newport Beach of its chip fabrication business to the Carlyle Group.

Latham & Watkins counts 1,500 attorneys in 20 locations. Eighty attorneys are in the Costa Mesa office. Chuck Nathan, a senior partner at the Latham & Watkins office in New York and head of the firm’s international M & A; practice, worked with Ruck on the deal.

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