Photograph by Tomohiro Ohsumi — Bloomberg via Getty Images
By Jen Wieczner
August 7, 2015

Hostilities escalated this week in Horizon Pharma’s unsolicited attempt to buy Depomed, a company that makes pain management and other neurologic disorder drugs.

Last week, Depomed (DEPO) rejected Horizon’s sweetened all-stock acquisition offer of $33 per share, which was up from Horizon’s hostile takeover offer of $29.25 per share earlier in July. On Monday, Horizon (HZNP), a serial acquirer, sought to bring Depomed to the negotiating table by starting a process that could force a special meeting of Depomed’s shareholders. At such a meeting, Horizon would propose to remove all of Depomed’s board members and change the company’s bylaws to make a takeover easier.

Depomed recently adopted a poison-pill plan that would dilute its stock if a shareholder bought more than 10% of its stock, which is also the only way a shareholder would be allowed to call a special meeting, under Depomed’s bylaws. Horizon said in its announcement on Monday that it owns about 1% of Depomed’s stock now, but plans to work with other shareholders to reach the 10% threshold. At the same time, Horizon said it was filing a lawsuit to challenge Depomed’s poison-pill defense and other bylaws.

In response, Depomed immediately fired back by filing a lawsuit of its own, alleging that Horizon’s acquisition bid “is predicated on the improper and unlawful use of highly confidential and proprietary information” relating to Depomed’s top product, the pain medication Nucynta.

On Friday, Depomed took its resistance up another notch by publicizing the letter it sent to Horizon Pharma’s CEO Tim Walbert. In the letter, Depomed argues that “it does not make any sense to engage with Horizon” until Horizon increases its acquisition proposal and adds a cash component of “up to 25%,” which Walbert and his fellow board members said they were willing to do, Depomed wrote. (Horizon’s current offer for Depomed undervalues the company because it does not account for the “strong” earnings results that Depomed recently reported, the letter continued.)

Depomed concluded its letter to Horizon with these threatening zingers:

Your willingness to increase your proposal is an obvious recognition that the vast majority of our shareholders do not support what you have proposed. Our Board takes its fiduciary duties seriously and will always be open to any compelling proposal that creates value for its shareholders, but we are prepared and committed to take actions that we deem appropriate to protect our shareholders’ interests, even if it involves protracted litigation and a proxy fight.

Ouch. “Protracted litigation” and “proxy fight” aren’t exactly events that either side will look forward to.

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