Legal and financial questions of Pfizer-Novo-Metsera

Summary

Shareholder Primacy Podcast Episode Summary

Podcast: Shareholder Primacy
Host: Free Float Media Inc.
Episode: Legal and financial questions of Pfizer-Novo-Metsera
Date: November 12, 2025
Hosts: Mike Levin (activist investor), Ann Lipton (law professor, University of Colorado)

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Episode Overview

This episode delves into the fierce bidding war—and subsequent legal drama—surrounding Pfizer and Novo Nordisk's competing attempts to acquire Medcera, a newly public and venture-backed drug company with a promising weight loss drug in development. The hosts break down the financial, regulatory, and legal maneuvering that defined the deal, focusing on antitrust considerations, merger contract terms, and the resulting high-stakes litigation.

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Key Discussion Points and Insights

1. Background on the Companies and the Deal

• Pfizer: Major US-based pharmaceutical company, famous for Covid vaccines, but lacks a GLP-1 weight loss drug in its portfolio.
• Novo Nordisk: Danish pharma giant, dominant in Denmark’s economy, creator of weight loss blockbusters Ozempic and Wegovy.
  • Recently faced share price struggles, but extremely valuable and influential.
• Medcera:
  • Newly public (IPO in January), no real revenues, “drug developer with a promising drug, though not… assured” ([05:52], A).
  • Heavily VC-backed, with concentrated voting power in two large funds and founders.
  • Was negotiating mergers even during its IPO process.
• Deal Process:
  • Both Pfizer and Novo bid similar price structures: cash plus a contingent value right (CVR) depending on drug milestones.
  • Both sides offered versions of a “public earn-out”—additional payments if Medcera's drugs hit development or regulatory milestones.

2. Financial Terms and Bidding War

• Bids and Structure:
  • Novo: $50/share cash + up to $37 CVR.
  • Pfizer: $47.50/share cash + $22.50 CVR ([08:04], B).
  • Novo’s bid “was absolutely higher by any measure” but carried regulatory risk.
• Pfizer ultimately prevailed: Forced to increase its bid by $2.7 billion over the initial bid ([01:43], A) due to competitive pressure.

3. Antitrust Risk and Legal Innovation

• Antitrust Risk:
  • Key barrier for Novo: already dominates in GLP-1 drugs, so a Medcera buyout likely triggers regulatory scrutiny.
  • Pfizer, by contrast, faces little risk due to lack of drug overlap.
• Hart-Scott-Rodino Act (HSR):
  • Requires pre-clearance for mergers above certain thresholds, focusing on acquisition of “assets or voting control” ([09:01], B).
• Novo’s Two-Step “Workaround”:
  • Proposed up-front cash payment for non-voting stock, reasoning that HSR covers voting but not non-voting control.
  • Potentially avoids pre-clearance; if the second step (full acquisition) is blocked, Novo keeps half the company (non-voting).

4. Legal Concerns with Novo’s Structure

• Risks Identified by Medcera:
  • Concern that the FTC (or DOJ) would treat the structure as an unlawful evasion of HSR ([13:33], B).
  • DOJ has previously fined companies for similar workarounds.
  • Medcera’s official proxy: “risk that the payment of the initial cash consideration and the subsequent payment of the dividend... may not occur.”
• Pfizer’s Strong Merger Agreement:
  • Medcera could only accept a new bid if it was “superior”—with a strict legal definition:
    • “The board has to conclude in good faith that it’s financially superior, taking into account all of the regulatory risks.” ([14:04], B)
    • Must be “about as likely to be completed according to its terms as the Pfizer deal is.”
    • Only breach of fiduciary duty would justify switching deals—a “very high bar” ([16:00], A).

5. Renewed Bidding, Indemnity, and Lawsuits

• Novo Adjusts Its Offer:
  • Matches previous structure, more cash up front, less CVR.
  • Adds wide-ranging indemnification for Medcera’s directors and VC stockholders—protection against litigation and especially government fines.
• Pfizer’s Response:
  • Counters with higher bids and files two lawsuits:
    • Delaware Chancery: alleges Medcera is breaching the merger agreement, Novo’s bid is not “superior” under the contract.
    • Federal court: alleges Novo’s actions are illegally interfering with competition ([18:05], B).
• Role of Indemnity:
  • Shows Medcera (and its backers) didn’t fully trust the government wouldn’t intervene—especially since indemnity covered fines, not just lawsuit damages ([25:05], A/B).

6. Court Proceedings and Regulatory Action

• Delaware Chancery Court (Vice Chancellor Zurn):
  • Refuses to halt the bidding (“last thing a Delaware court’s gonna do is interrupt an active bidding contest” ([29:07], B)).
  • No finding of “bad faith” against Medcera for negotiating; any breach could be compensated later.
  • Result: Pfizer forced to keep outbidding—ultimate “winning” price of $65.50/share + $20.65 CVR ([30:10], A/B).
• FTC Intervention:
  • During government shutdown, FTC warns via letter/phone: two-step non-voting share structure is “really illegal” ([30:21], B).
  • Casts doubt on Medcera’s proxy claim that the regulatory risk had been resolved.
  • “It may not be possible to indemnify for illegal conduct.” ([30:54], B)

7. Aftermath, Takeaways, and Future Litigation

• Pfizer “wins” the deal by paying a huge premium.
  • Closing scheduled for November 13 ([34:27], B).
  • Novo backs off, but Pfizer left with potential claims for damages (“tortious interference”)—unlikely to pursue, but reminiscent of Pennzoil/Texaco in the '80s.
• Potential for Future Disputes:
  • Expected litigation over CVR payouts—“Earn out litigation is going to be what’s left” ([34:41], A).
• Memorable Quotes & Analysis:
  • “The board has to conclude in good faith that the new proposal is so much better... that the regulatory risks are so minimal that it would actually be a breach of fiduciary duty not to take.” ([16:00], B)
  • “That’s a very high bar.” ([16:00], A)
  • “You can’t put that toothpaste back in the tube.” ([25:05], A)
  • “[Novo] call it a bribe to Medcera to get it to terminate the Pfizer deal with no intention of consummating the back half.” ([28:34], B)
  • “Vice Chancellor Zurn… believed, well, I can always fix it later…” ([32:01], B)
  • “It’s great for Medcera shareholders, mostly these VC backers.” ([31:58], B)

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Important Segments & Timestamps

• Deal background and players: [03:11] – [06:09]
• Bidding dynamics and CVR structure: [07:14] – [08:54]
• Antitrust risks, HSR Act, and Novo’s workaround: [09:01] – [11:52]
• Merger agreement terms (“superior proposal” definition): [14:04] – [16:04]
• Novo’s indemnity, Pfizer lawsuits, Delaware Chancery: [18:05] – [20:15]
• FTC intervention, government shutdown angle: [24:12] – [31:49]
• Analysis of Chancery Court’s refusal to halt bidding: [29:07] – [32:41]
• Historical comparison (Pennzoil/Texaco case): [33:12] – [33:30]
• Deal closure and leftovers for future litigation: [34:27] – [34:53]

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Tone, Color, and Analysis

The hosts blend technical legal and financial insights with casual, sometimes wry commentary. Ann Lipton’s legal acumen grounds the discussion, while Mike Levin’s activist-investor perspective gives color to the strategic and economic stakes. The episode captures how legal nuance, regulatory risk, and tactical aggression collide in a high-profile, high-stakes pharma M&A fight.

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Bottom Line:
Pfizer’s hefty win in acquiring Medcera was as much due to effective contract drafting and a sharp understanding of antitrust risk as it was about outbidding. Novo’s aggressive antitrust workaround almost succeeded but was ultimately stopped by regulatory pushback and a carefully locked up merger agreement. The result? A massive payday for Medcera (and its VC backers), with Pfizer perhaps left with lingering annoyance—and the possibility of further litigation.

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For more analysis on activist M&A, securities law, and corporate warfare, subscribe to Shareholder Primacy.

Transcript

[A]

Welcome to Shareholder Primacy from Free Float Media, a podcast about activist investing, securities law, and all the ways the financial and legal worlds intersect and collide in real life. Ann and I have returned. Ann, of course, is Ann Lipton. She's a law professor at the University of Colorado who teaches and researches securities and business law. She looks after the legal and part of our little podcast enterprise here.

[B]

And that's Mike Levin, an activist investor who lives and works in Chicago. He covers the financial side of our podcast.

[A]

I try to. Anyway, go ahead. You have something you want to tell us about?

[B]

Yeah, it's just a reminder. If you want to get in touch with us for any reason, you can email us at shareholderPrimacyRefloat LLC.

[A]

Yes, please send emails. We could use a few. We're not running out of ideas, but we like to hear from everybody about what they want to us to talk about Anyway. And this past week, there was a brief, intense and interesting news event. Interesting and potentially important in a deal. And that's the one among and between Pfizer, Novo Nordisk and Metzera. And Pfizer and Novo were competing to acquire this drug company, Mitzerah. We did hear, after you and I sketched all this out, what we wanted to talk about, that Pfizer in fact prevailed. Pfizer won this kind of quasi pseudo auction. It wasn't even that.

[B]

Oh, it was an auction.

[A]

It was an auction.

[B]

Okay.

[A]

It was an auctioneer. But they were going back and forth. And the deal is back on. So Pfizer is now on the hook to acquire Meds Era with some really interesting turns, twists and turns, and some terms. And Pfizer is paying something like a quarter or a third more than it originally proposed. 2.7 billion more than it originally than its first bid. So on top of its original bid of 7.3 billion. That's a lot of money.

[B]

Yeah. On top of the bid that it thought it had an agreement.

[A]

Yes, exactly. They thought this was a slam dunk. So even though as of a few days ago, it's presumably over, or at least the competing part, we thought we could outline some of the basic details and then also talk over some really delicious legal issues.

[B]

Yeah, there were some really interesting legal skirmishing that happened in the course of all this.

[A]

Right. So. But the timing was a little weird for us, wasn't it? I think.

[B]

Yeah, it's just. Well, the whole thing resolved in a couple days, so it just. Yeah, it's only been going on for like less than a week, but I'll just say at the outset that we are recording this on the morning of November 10th, and we're gonna make this podcast public on the morning of November 12th. So if anything dramatic happens between those two times, we're gonna be a little out of date. But as of the morning of November 10th, here's where we are.

[A]

So followers, forgive us if something crashes and burns in this deal in the next 48 hours or even after. But we hope to guide everybody through at least what we thought was kind of interesting. Let's look at some of the issues. The players of course are. I'll talk about that for a sec. The players are Pfizer, who everybody gotta know by now, of course, developed some of the original Covid vaccines. Long time centuries old US Pharma company remained actually kind of independent up till now. But importantly, their problem is they do not have a horse in the weight loss race. They do not have a glp. One drug. They had one that went somewhat far into some trials and then just failed. The other bidder here is Novo Nordisk, which everybody kind of knows of who they are. They're more of a one trick pony. They have other drugs, but they're really. They're the Ozempic and Wegovy people and have made just boatloads of money.

[B]

Yeah. But they've been stumbling for whatever reason recently.

[A]

Yeah. The most recent years share price performance has been not great.

[B]

But they do have these two like blockbuster weight loss drugs.

[A]

Right. Novo, I don't know if you knew this. They are the by far the biggest company in Denmark where they're domiciled their market cap. And again, I always hesitate a little bit to mix stock numbers like market cap with flow numbers like GDP. But their market cap of 6,700 billion dollars is larger than the Denmark economy. Yeah, I mean they're dominant. And then there's Medcera, who is now you looked at Medsara.

[B]

Yeah. So Medcera, they only just went public this January and apparently they were negotiating a merger even then. But they only just went public this January and they have these new weight loss drugs of the same class in development that are apparently very promising. But they are not yet there. They haven't. They're not yet on the market. And it's a venture capital backed company. It's got two big funds that are backing it and those funds and their affiliates have a majority of the voting power and the company founders have the voting power. So it's publicly traded. But a lot of the voting power

[A]

is it's all really concentrated and it

[B]

was backers and the founders.

[A]

And it was an IPO within the past 12 months, which itself is a little notable.

[B]

It's not even a seasoned issuer under these regulations.

[A]

And they have like zero revenues. All they've done is pile up just like lots of losses.

[B]

Yeah.

[A]

So they're basically a drug development company with a promising drug, though not, it's not assured, they don't have any kind of FDA approval yet to sell it, or it's just this. It's this kind of flyer. And then Pfizer, because they don't have one of these. Go ahead.

[B]

Yeah, so like a bunch of companies were looking to acquire them and as I said, even before, apparently these talks are beginning even before they had the ipo. I mean, that's an interesting decision that they had the IPO while having discussions, but whatever. So they had actually a whole bunch of different acquirers that were interested in them. But essentially two were the most promising, Pfizer, because Pfizer, that would give Pfizer the foothold in this weight loss market that it doesn't currently have. And Novo, which obviously is well established in this market because Novo wanted to preserve its position as the dominant player and also shore up, you know, the pro its stock price after the problems they've been having. So after several rounds of bidding and a lot of negotiations, both of them had the same basic proposal financially. So both of them proposed to merge with Matsera and buy out the stockholders for cash plus a contingent value. Right. And the contingent value. Right. A CVR would. It wouldn't trade, but basically it would. It was. It's essentially the equivalent of what you do as an earn out in a public.

[A]

Yes.

[B]

It would pay out additional cash if Medcera's drugs in development met certain milestones, you know, for effectiveness and FDA approval and so forth. So, and this is very common in drug companies. And also the litigation that follows is very common in drug companies where they've got their drugs in development, you don't. They could either be worth everything or they could be worth nothing. So when you buy out the stockholders, you pay a contingent value. Right. That will give them additional cash if the drug turns out to be successful.

[A]

If it succeeds.

[B]

Right, exactly. So by the time the dust settled with multiple rounds of bidding, so both of them were proposing cash for the stock plus cbr. And by the time all this bidding happened, Novo's bid was absolutely higher by any measure.

[A]

It was like in terms of like a total valuation in every measure.

[B]

It was offering $50 in cash plus A CVR that would pay out a maximum of $37 per share. And Pfizer was only offering 4750 per share in cash. Cash plus a 2250 CBR. So on every possible measure, Pfizer's bid was lower, it was inferior. But there was a big stumbling block to novo's bid, and that's antitrust. Because Novo, with two weight loss drugs in its portfolio, presented a lot more antitrust risk than Pfizer, which had no weight loss drugs in its portfolio.

[A]

Right.

[B]

And, and the.

[A]

So when we, when we talk about nh, I mean, interrupt you when we talk about antitrust risk, we mean whether the. I'm guessing the ftc, not the fda, whether the FTC would allow this merger to go forward.

[B]

Yeah, and it's more than that. Not just that. There's a particular statute called Hart Scott Rodino hsr.

[A]

Right.

[B]

So basically the backstory here is that what companies would used to do is if they knew that if they presented antitrust risk, they would rush to merge really quickly before the government could stop them figuring that even if the government sued after the fact, it's really hard to unscramble the unwind it.

[A]

Yeah, right.

[B]

Yeah, yeah, exactly. So Hart Scott Rodino is this pre clearance system where if your merger is of a certain size that involves like either buying up assets or taking voting control, you have to pre clear it with the government. And if the government doesn't think there's a problem, you just, it's just a waiting period and you sit around and you emerge. But if the government does think it's a problem, it can ask for discovery and you can get into a really prolonged discussion discovery process that ends worst case scenario, with the government going to court to block you. So the big issue here was that Novo had such high antitrust risk. There was like this whole discovery period before they could actually do the merger threatened to be very prolonged and very uncertain. So novo came up with this novel

[A]

workaround and that's what I'm kind of curious about. Go ahead.

[B]

Yeah. So the idea would be to have two different pieces to the merger. First, as soon as Mitzera signed the merger agreement, Novo would pay the cash portion, the $50 per share in cash, straight to Medsara, just at signing, before there's even a shareholder vote. At signing, they would pay this cash to medsara and Medcera would pay that cash out as a dividend to its own shareholders. And in exchange, Medcera would give Novo about half the company the economic value of the company, but in non voting stock. And Hart Scott Rodino only applies if you're selling assets or voting control. Non voting stock does not require pre clearance. So the theory was that this first half of the transaction could just happen right away without going to the ftc. Novo would get half the company, but only a non voting stock. It would be financially half though it would be entitled to dividends and all of that. But it would be non voting stock worth half the company and they would pay all the cash upfront and Med Zero would have that.

[A]

So the entire part of the cash structure was going to be paid out now, immediately.

[B]

And so all that would be left would be the contingent value. Right. Which was much less like. So I haven't done the math. Let's say 2/3 would be paid out right away.

[A]

Yes.

[B]

And then the company would sort of fight it out with regulators, hopefully. And then if the regulators ultimately approved, then they would have the merger and the shareholders would get the back end consideration, which would be the contingent value. Right. And if the shareholders. And if the. But if, but if the merger wasn't approved by regulators, then Novo would just continue on owning half the company. Non voting stock, but with economic value. The shareholders of Mitcera would still have their cash. It would be the equivalent of a massive break fee. And you know, they'd still have half their own company. Now the problem.

[A]

That's an interesting way to think about it.

[B]

Yeah.

[A]

That it was just this, the break fee being paid upfront before medcera did a damn thing.

[B]

Exactly. And now what it would mean is they'd still have financially half their company. If their drug turned out to be incredibly valuable, they'd still have half of that. But it also means that there would be a huge stumbling block if anyone else wanted to take over the company because they'd have to buy out Nova.

[A]

Right. They have to pay out. They'd have to pay.

[B]

It had a liquidation preference. It basically got back what it paid in. So any future acquirer would have to buy essentially half of Metcerated from the right from the public stockholders and then buy out Novo. So in many ways this is a really advantageous structure because the absolute worst case scenario is that they sell half their company for what is actually financially probably a lot more than half their company.

[A]

Right.

[B]

But Med Sarah decided this was too risky, partly because this waiting period while they waited to see if the merger got approved by the FTC would just introduce so much uncertainty for the company that it would just really weigh on the business. But the other reason and this is in Matsera's proxy statement. I'm quoting it now. With novo's bid, there was, and this is the quote, the risk that the payment of the initial cash consideration and the subsequent payment of the dividend in respect of shares of Matsera common stock may not occur. That was the concern that that upfront cash payment wouldn't ever happen. So the question is why? Well, they didn't say why, but my, but what I gather why is because the Hart Scott Rodino act would view this as an evasion. Like it actually says you can't like restructure a merger transaction.

[A]

Oh, with the non voting shares.

[B]

Exactly like. And this has actually happened before. The DOJ has fined companies for this. For like doing like exactly this, essentially. So Matserra, they didn't invent.

[A]

The lawyers here didn't invent this.

[B]

Did not invent this. So Metsaro was apparently concerned. I mean, this is what I'm reading between the lines here. Not only that this structure would still violate Hart Scott Rodino, but they were apparently concerned that the government would be annoyed enough that before they could even get that initial cash, they would actually go to court to try to get an injunction to stop it.

[A]

Got it.

[B]

Oh, interesting. So that's, that's what I take from this. So given all of these risks, it went with the lower bid of Pfizer and this was all agreed to on September 22nd. It wasn't very long ago, but apparently shortly after signing with Pfizer, Novo and Medsera start talking again. Except now Mitzera has a merger agreement with Pfizer and the agreement restricts Mitzerah's ability to accept any topping bid. It can't just say, well, novo's higher now. So under the agreement, Mitcera is only allowed to accept a topping bid if that bid counts as a superior proposal. And a superior proposal has a very specific definition in the merger agreement. It's not just more money to be a superior proposal. The board has to conclude in good faith that it's financially superior, taking into account all of the regulatory risks. And it has to be about as likely to be completed according to its terms as the Pfizer deal is. So it has to be financially superior and about equivalent to Pfizer in terms

[A]

of likelihood of success or no less is likely as given all the. Pfizer was given all the regulatory risk. Pfizer, I know they were highly confident that there was no antitrust risk with Pfizer.

[B]

Not only that, they got the, their waiting period for Hartz got Rodino was early. They got early termination. It was so obvious. The FTC basically said, we don't even have to worry about this. And it's more than that. Plus, the board has to not only conclude that it's financially superior and that given the risks, it's still likely to be completed and so forth. The board has to conclude in good faith that the new proposal is so much better than Pfizer's deal, that the regulatory risks are so minimal that it would actually be a breach of fiduciary duty not to take.

[A]

That's, that's, that's a very high bar.

[B]

That is an extremely high bar.

[A]

And these are. Is material Delaware?

[B]

Yes, they're all Delaware corporate.

[A]

Okay, so they're all Delaware corporations.

[B]

Well, not, not noble, but. But it's a pretty high bar. But it's not unusual if the company already has gone through a lot of bidding. Like, locking it up that tightly would be bad if you just like went with the first bidder, right? It's not, but I've seen that. I've definitely seen things like that before when the company has already negotiated quite a bit. And Pfizer was obviously concerned because it knew that Novo was out there.

[A]

Novo, I mean, you said they'd been doing this since the ipo. They'd been talking everybody.

[B]

So they knew exactly what the risk were. But so, so, so, so they locked up this deal really tightly with. It has to be financially superior given the regulatory risks, about as likely to be completed on its terms as Pfizer's is. And it would have to be a breach of fiduciary duty for Medcera not to take it. That is the standard for terminating in favor of the Novo deal. But what Novo comes back with to Medcera is exactly the same plan. Cash up front, CBR in the back, except now they've changed the dollar figures. So a lot more cash is being paid up front and the CVR is lower and it's actually less money total, but it's much more front loaded. And then the bidding went on and Novo went even higher. But originally Novo's new bid was exactly the same as the old bid in terms of structure, just with more cash upfront. And this time, though, after, apparently they brought this up with Pfizer, that they were doing this, and Pfizer screamed bloody murder about liability. So Novo added an indemnification provision. The indemnification provision says that it would indemnify not only the company, but also not only the directors, but also the venture capital backer stockholders, the VC stockholders from any damages and subsequent lawsuits. So Medcera goes and they tell Pfizer that Novo has a superior bid, which means that Pfizer has four days to counter. And Pfizer actually does counter, but it also sues.

[A]

That's what I was waiting for.

[B]

Twice. Yeah, it sues twice. Two complaints were filed, one in the Delaware Court of Chancery and one in the Delaware federal court. The Chancery lawsuit is basically that Matsera is breaching the merger agreement and that this isn't a superior bid because the antitrust risk is still there. And Pfizer also sues Novo, claiming that Novo tortiously interfered with its contract.

[A]

Okay.

[B]

And then there's the federal court claim where this is an antitrust claim claiming that Novo is essentially committing antitrust violations by trying to interfere with the competing competitor merger. All right, and then. But at the same time, Pfizer is continuing to up its bid for medsara.

[A]

All right, so let's. It's the lawsuits that I think that really.

[B]

Yeah, the lawsuits have my attention further.

[A]

Some further, further debate and discussion. So, yeah, why don't we cover those and talk about those and kind of where they went and what Delaware did and so forth after a quick break.

[B]

Yep. Okay.

[A]

All right, cool. We're going to take a quick break and we'll be back here at Shareholder Primacy.

[B]

Shareholder Primacy is brought to you by free flow analytics.com the only free database of corporate directors, their influence and their performance. If you own a stock or retirement plan, go to free flow analytics.com and look up which of your elected directors are performing well and which aren't. Use your vote in the alternative democracy

[A]

and get your data @free flow analytics.com

[B]

now back to the show. Welcome back to Shareholder Primacy. I'm Ann Lipton here with Mike Levin. And we are continuing to look at the Mitcera Pfizer deal and the litigation that followed.

[A]

Mitsara. Pfizer. Novo.

[B]

Novo deal.

[A]

Yeah, Right. Because that's how this kind of got started. All right. Where we left this before the break was kind of setting the stage for all these competing bids and the antitrust risk. We didn't even talk about regulatory risk in terms of drug approval, but I suppose that was really equal for both companies. I mean, that's a risk that me I'd think about if I was a Pfizer shareholder, which I have been occasionally. I've never owned Novo shares, but I have been in Pfizer once in a while.

[B]

Well, that's why the cvr. And that's why. Well, I mean it's not. I mean that's partial. Well, I guess the regulatory is gonna be pay out all this cash and they've got nothing. But that's the cvr. And they heavily negotiated what the actual milestones were.

[A]

Right, okay. But anyway. But the main risk here was the antitrust.

[B]

Yeah, exactly.

[A]

And Pfizer. I don't know if rightfully so, but Pfizer got very pissed off at what was happening.

[B]

Yeah. I gotta tell you, some of these are Pfizer on this, but yeah, they

[A]

marched right into two different courts, filed a bunch of different lawsuits which we want to talk about for a little while. So what did in order. Should we start with Delaware Chancery or.

[B]

Well, that's really the. I mean nothing. Yeah. So yeah. So in Delaware. So I mean the federal one is just simply that Novo is interfering with this transaction solely because Novo figures if I can't have medsara, it's better if Pfizer doesn't.

[A]

Right. And that was, and that was in part I was gonna talk about this toward the end, but we'll return to it. That was part of what Novo was trying to do. They were not as much trying to get this drug. Cuz they already have good drugs. They're like not doing great, but they were fine. And they have a whole. I think they were trying to keep this out of Pfizer's hands.

[B]

Yeah, that's exactly Pfizer's theory as well. So.

[A]

And that'll probably come up here. Okay, go ahead.

[B]

Because so, so. Well, in, in, in, in Delaware Court of Chancery, their fundamental argument is that this is a breach of contract. This is the breach of the merger agreement because novo's bid is not superior under the merger agreement. And under the merger agreement, Matsera can't terminate unless it has a superior offer. And it comes down to the fact that to be superior you have to, it has to be likely to be completed on its terms as the, or at least as likely as the Pfizer bid. But nothing's changed from late September when Medcera concluded that the Novo bid was unaccept risk. Like there's no change. But medsara claims actually in its papers, its argument is actually there was a change because after it signed with Pfizer, Metcera argues Novo began talking to U.S. regulators. And now Mitzerah believes that that Novo basically cleared a path with the US regulators. So that regulatory approval for antitrust is much clearer. It's much more likely. So coupled with the Higher bid financially then now Med Sarah is much more comfortable with the antitrust risk and that's the reason this is a superior offer.

[A]

So just the act of novo educating itself a little, but really talking jawboning, the FTC seemed to persuade, probably Novo and then by implication Matsera that FTC approval of this deal was somehow much more likely.

[B]

Yes, although that is their story. Whether it is truthful story is a whole separate question, which is why this is fun because. And I just got to say, in their papers, they make these fairly elaborate arguments about the complexity of the antitrust issues and how it might be very difficult for the government to demonstrate that Novo's bid was actually anti competitive. But here's the thing. Legally, that's not actually the question. Legally, the question is whether it's so obvious that the Novo bid. Because now that they've got a merger agreement in place, the legal question is whether it's so obvious that the Novo bid would be completed that it would be a breach of fiduciary duty for medsera not to take it. And that's a very different question from. Well, actually there are different antitrust arguments you made, but anyway. But if you read Pfizer's page. But nonetheless, Metzar's story is new information. We spoke to the regulators, we have a better sense now. And now we think that this.

[A]

And now we're really confident, man. We are. This is going to just fly through and.

[B]

But if you read Pfizer's papers, there's a different argument that they, they kind of dance around. They don't say it like, they say it somewhat explicitly, but not that explicitly. But this is the implication, this is the story that Pfizer is telling. Yes, it's about the government shutdown.

[A]

Oh, interesting. Okay, go ahead.

[B]

Pfizer's argument is Novo has this bid structure of cash upfront and then if there's no merger approval, medsara shareholders keep the cash. That's a really great deal for Medcera because it means, as we said before, worst case scenario, they get all the cash and they still have half their company at the bidding numbers that we had. Now Novo in Effect pays shareholders 7.2 billion for half the company, which is a really good deal.

[A]

That's a great valuation, man.

[B]

But Sarah was concerned that the government would block that payment from being made. So no deal originally. But now with the government shutdown, Pfizer is suggesting it looks like a better bet that the upfront payment will be made before FTC can act to stop it. And then Once it's been paid out to shareholders as a dividend, there's no way for that.

[A]

You can't get that back. You can't put that toothpaste back in the tube.

[B]

And that's why Novo had to indemnify the VC backers. Because if the government.

[A]

Oh, cause they're the ones who are gonna get the.

[B]

Exactly. Because if the government came after them belatedly, they can't go after all the public shareholders who got this special dividend, but they sure as hell can go after the V shares.

[A]

And the VC's probably owned, you know, significant blocks of the shares, and they know where to find them. They know where their banks are, and they blame the.

[B]

And the. And also the founders who have things of stock. So that's why the indemnification was so necessary. So MIT Sarah says that it only wanted this indemnity agreement because Pfizer threatened to sue. And maybe that's true, but I have to say, this indemnity agreement doesn't just identify against litigation damages. It indemnifies against fines. Fines aren't what you pay to Pfizer. Fines are what you pay to the government. Right, so it sounds like this indemnity agreement was about government antitrust risk. So that. Which puts a little damper on the story that, oh, well, now we think that our antitrust.

[A]

This is Right. If they didn't think that was a remote threat, they wouldn't have. I mean, fines and the broad, broad, broad indemnity agreements in there. Right.

[B]

But it gets. It gets better, though. See, this is what I love. This is why I love this story. So, okay, so as we've said, Novo would much rather wants to obtain Metzera and shore up its own position. But if it can't obtain Metzera, its best bet is nobody else does. Because if Pfizer has it, it's going to be able to compete much better than Serotonin as a standalone. Right? So Novo's first choice is to get medsera. And its second choice is just to keep medsera as a standalone company.

[A]

Keep it on the sidelines for a couple years. Right?

[B]

And that's why it's willing to take this huge risk on an upfront cash payment and nothing more. But that begs the question. Remember, the only reason there's antitrust risk here is because Novo is trying to take control of Mitcera in the second half of the deal. What if Medcera and Novo just skipped the second half? What if instead they just agreed? Novo buys half of Medcera, but Non voting stock only. That would be enough to keep Pfizer away because it would be very expensive for Pfizer to buy out Novo. And if you didn't have that back half merger, you don't have HSR problem. Remember, buying the non voting stock is fine. The only reason there's an HSR problem is because the non voting stock is a prelude to taking over the company. So you might ask, well, if Novo's goal now is just to keep Pfizer away, why doesn't it just buy the non voting stock outright for a big cash payment?

[A]

Right?

[B]

It keeps Pfizer away. And it's not an HSR if there's no merger contemplated, it's not an HSR transaction. So the question is, why don't they just do that? There is an answer. The merger agreement medsara can only terminate for a superior deal. And a superior deal has a very specific definition. Someone acquiring 50% of the voting stock or 50% of the actual assets of the company doesn't include someone getting 50% non voting interest. So I think Pfizer's theory, and they're sort of a little bit dancing around it, but their theory I think is that Novo's entire plan was just to make this upfront cash payment essentially as a bribe. They call it a bribe to Med Sarah to get it to terminate in

[A]

their, in their pleadings, in their complaint.

[B]

Yeah, they actually, they call it, they call it a bribe to Med Sarah to get it to terminate the Pfizer deal with no intention of consummating the back half. The back half is only part of the deal at all. To bring this transaction within the definition of a superior offer so that Mitzerah can use it as an exception. Excuse to terminate.

[A]

Wow. Okay.

[B]

That's Pfizer's argument.

[A]

All right, so, and this, the procedurally, this kind of got a couple of steps in front of Chancellor. Chancellor, I think.

[B]

Yeah. It was before Vice Chancellor Zern and they had two different hearings where Pfizer was asking for tro, a temporary restraining order to get. Because Zern to halt the bidding and halt Metzera's threatened to terminate, but she refused. Both times she refused to halt the bidding. She said partially like the last thing a Delaware court's gonna do is interrupt an active bidding contest for the stock. But the other. But what she said was, remember medcera can only terminate if it believes in good faith that this is a superior offer. It has to, et cetera, et cetera. And she said that Pfizer hadn't shown Bad faith. And she also said, any problems? If Pfizer's right and there was a bad faith and this wasn't good faith and Medcera breached the merger agreement, then we can deal with that in the appropriate time. You don't need to interrupt the active bidding right now. So Pfizer was sort of forced into this bidding posture until it got up to Pfizer bidding 6550 cash upfront, 2065 for the CVR. So just much more than the original.

[A]

So it was clearly a superior bid in every respect. Including, but not only the antitrust risk.

[B]

Right.

[A]

I mean the economic, the economics were a lot better than what the economics

[B]

got, a lot better for medsara shareholders. But. And Novo sort of let it go there, but apparently that's not the reason it ended. What actually happened was that the FTC intervened during the shutdown. It intervened with a letter and then a phone call to Med Sarah basically saying, no, seriously, this two part structure with the cash up front and the back end merger is really illegal.

[A]

Yeah. Right. We're going to, we're going to really look at this really carefully.

[B]

Exactly.

[A]

And you're, and the indemnification that you just provided everyone, you're going to have to pay a lot or it might

[B]

turn out to be illegal because it may not be possible to indemnify for illegal conduct. So FTC basically gives them a stern talking to. And Med Sarah says, all right, given that we give up, nobody gives up and they take this higher offer. But we have to suspect there's been a lot of reporting that Pfizer CEO has been seriously cultivating the Trump administration.

[A]

Yes.

[B]

And that, that may be why FTC intervened. Not because they're wrong about whether it's illegal, but this is a, during a government shutdown. I mean, during the last government shutdown like this, you know, FTC wouldn't have given, say, early termination of the HSR waiting period, but it gave that to Pfizer even during this anyway. So we don't know whether the reason FTC intervened was because of Pfizer's relationship with Trump or what. But this FTC letter puts things back to the start by saying, no, seriously, you can't structure the deal with Novo this way.

[A]

Right. This is gonna be a problem.

[B]

Yeah, yeah. But I'm going like, I mean, it's not like I feel really bad for Pfizer, but.

[A]

Right. I mean, I feel great for medsara shareholders.

[B]

It's great for medsara shareholders, mostly these VC backers. But.

[A]

Right.

[B]

I mean Vice Chancellor Zern, she refused to halt the bidding partially because she believed, well, I can always fix it later. We could deal with it later in terms of damages or whatever. But I think that kind of ignores the fact that when she refused to grant a temporary restraining order, Pfizer was kind of forced to counterbid. Like, it didn't. Like it didn't have a whole lot of choices to not counterbid. But the merger agreement was supposed to mean that it didn't have to counterbid. So it was kind of forced to counterbid very possibly even though it had contractual rights. So its contractual rights kind of fell

[A]

by the wayside, as expressed in this original merchant agreement that Pfizer thought was just signed, sealed, and delivered.

[B]

At that point, it was completely locked up tight. But so nonetheless, it was kind of forced to bid higher, even though, I mean, I think there's a good argument that Mitzerah really was breaching the agreement, and Pfizer should not have been forced

[A]

to bid higher to raise its bid.

[B]

Although. And so that's probably where things end. But there is this one little thing. Many years ago in the 80s, many years ago in the 80s, but there was a situation where Pennzoil was going to buy an oil company.

[A]

Oh, my God, I remember.

[B]

And Texaco Inter interfered with the bid, and Pennzoil sued Texaco for tortious interference and won, like, a $10 billion judgment.

[A]

Right. That was, that was. That was the. By far the. I mean, by magnitude, the largest such judgment ever.

[B]

Right. And it would never happen again. It was very Texas. It was a Texas jury. None of that's going on in Delaware. Nonetheless, Pfizer does have this outstanding claim for tortious interference with novo. I assume it's gonna drop the claim, but it would be really funny, and I personally would be very pleased if they continue to litigate litigation.

[A]

Oh, sure, Maybe, maybe. Maybe the damages there are the marginal. Higher.

[B]

Exactly like the damages would be. We should never have been forced into this posture.

[A]

If you're novo and you lose that or you have to settle that, yeah,

[B]

it would be hilarious. But I rather suspect they're going to drop it. But if they didn't, it would. It would please me personally, and obviously, I think that should weigh very heavily on their mind.

[A]

We'll make sure they know that. That these two podcasters want. Want to see what happens with the. With the federal court. Court, man.

[B]

Yeah.

[A]

Oh, wow. All right, so what we have here now is that Pfizer is going to be a buy in Medera. Did they say when they close yeah.

[B]

It's scheduled for November 13th.

[A]

So this is going to close like this month.

[B]

Yeah.

[A]

All right. So maybe Pfizer will be back in the, back in the GLP1 business.

[B]

Exactly.

[A]

We'll sort of see what happens.

[B]

Well, this is litigation over the cvr, so that'll be fun, too.

[A]

Oh, like over usually is over whether cvrs milestones. Right. If they, if they earn out, earn out, earn out. Litigation is going to be what's left. Right? I think that's what's going to happen.

[B]

Well, it usually does.

[A]

All right. Well, this is great. Hopefully all the law students that were listening to this will take something away from this, too. Let's wrap up and move on to other subjects, like in the coming weeks. This is Shareholder Primacy, hosted by Ann Lipton and me, Mike Levin. I'm an independent activist, investor and advisor to investors about their activity situations and is professor of law and The Lawrence W. DeMuth Chair of Business Law at the University of Colorado Law School. You can find me, [e-mail] and [e-mail]. our podcast is produced and distributed by our good friends at Free Float Media. Thanks for listening. We will talk again soon.

[B]

It.