When St. Jude Medical Inc. completes its $1.3 billion acquisition of AGA Medical Holdings Inc. at the end of the year, it will end one of the briefest, most disappointing and weirdest tenures of a publicly traded company in Minnesota’s recent history.
Lost in the hoopla over St. Jude’s all-cash, $20.80-a-share offer for AGA: the announcement comes three days before AGA’s one-year anniversary as a publicly traded stock.
That’s right folks, AGA, based in Plymouth, agreed to sell itself less than one year after its initial public offering. Geez, I know the markets have been brutal, but this might be one of the quickest exits in Wall Street history.
So why did AGA lose its nerve? Experts point to the usual suspects: weak economy, low valuations, problems with risk-averse regulators at the Food and Drug Administration.
Charles Haff, an analyst with Minneapolis-based investment bank Dougherty & Co., suspects AGA’s problems gaining FDA approval for its Amplatzer PFO occluder and cardiac plugs — devices used to treat structural defects in the heart — pushed the company to a sale.
“This appears to be a good deal for AGAM shareholders because we have long suspected that there may have been problems with AGAM getting a ‘timely’ approval for their Amplatzer PFO occluder [aka RESPECT clinical trial],” Haff wrote.
“Also, AGAM had been expected to receive FDA approval for their Amplatzer AVP IV cardiac plug in the U.S. by now,” he continued. “Management had been stating that they expected approval in the second quarter of 2010, but so far they still do not have the approval. Since that still has not occurred, we believe that it is putting pressure on their revenue growth in the U.S.”
With its deeper pockets, St. Jude Medical presumably has the financial resources to finish the last leg of the regulatory marathon.
Fair enough. But 12 months as a public company hardly seems worth it, given the enormous cost to file an IPO (investment bankers still like their fees) and comply with regulations like Sarbannes-Oxley.
Ironically, St. Jude’s offer is the price AGA unsuccessfully sought for its IPO in 2009. The company initially had priced its stock between $19 and $21 a share, and then lowered its forecast to $15 to $16 a share before settling on $14.50.
AGA’s top investor certainly wasn’t happy with that IPO price. When AGA officially went public in October 2009, guess how many shares private equity firm Welsh, Carson, Anderson & Stowe sold?
Zero. Nada. Zilch.
It’s not like Welsh didn’t have shares to spare. The firm owned nearly 26 million shares, or nearly 52 percent of the company.
There’s really only one reason why an investor wouldn’t sell the shares — you think they might be valuable in the future. As it turns out, Welsh was right. The firm stands toreceive a whopping $447.2 millionfrom St. Jude’s offer.
One person who wasn’t shy about selling his shares is AGA co-founder and the company’s second-largest investor, Franck Gougeon. Of the 17.3 million shares he owned before the IPO, Gougeon sold 6.7 million shares, netting him $51 million, according to documents filed with the Securities and Exchange Commission.
OK, this is where it really starts to get interesting. Gougeon co-founded AGA with University of Minnesota scientist and medical device pioneer Dr. Kurt Amplatz, but somehow Gougeon ended up with the large ownership stake.
As it turns out, Gougeon was married to Dr. Amplatz’s daughter, Caroline. But the couple eventually divorced.
In February 2009 — 10 months before AGA’s IPO — Caroline Amplatz pledged $50 million (almost the same amount Gougeon received for selling his shares) for the university’s new children’s hospital, which the school promptly named for Dr. Amplatz.
What a coincidence.
From the Star Tribune in Minneapolis:
Caroline Amplatz declined to identify the source of the funds for her donation. She has two foundations of her own, one to support education in Latin America and one to support Twin Cities children in the performing arts.
Her father, however, was not at the news conference “because he is skiing in Aspen,” she said. “He always goes at this time.”
Speaking after the news conference Tuesday, Caroline Amplatz said the donation was her decision, not her father’s. She said she had told her father about it, but doesn’t know what he thinks of it. “He’s keeping his thoughts to himself,” she added with a smile.
Gougeon, by the way, stands to receive $209.8 million from the St. Jude deal.
So why did AGA go public in the first place? Especially during such a bad market for IPOs?
I’m sure there could be other explanations, but the cynic in me suspects AGA intended all along to sell itself to another company. AGA’s IPO had less to do with company financing than marital financing.
Gougeon’s divorce, his ex-wife’s generous gift to a hospital named after her father (who doesn’t own any of the company he co-f0unded with his former son-in-law), AGA Medical’s half-hearted IPO … a little too much to be coincidental.
Of the two main owners of AGA (Welsh and Gougeon), only one of them sold any shares during the IPO.
But you better believe both of them will profit from St. Jude’s offer.
