425: Enzon Pharmaceuticals and Viskase Companies Announce Definitive Merger Agreement, Forming Viskase Holdings, Inc.

Enzon Pharmaceuticals, Inc. and Viskase Companies, Inc. have entered into a definitive merger agreement, with Viskase becoming a wholly owned subsidiary of Enzon, and the combined entity to be named Viskase Holdings, Inc. and trade on the OTCQX.

Summary

• Enzon Pharmaceuticals, Inc. (ENZN) and Viskase Companies, Inc. (VKSC) have signed a definitive merger agreement.
• Viskase will merge into EPSC Acquisition Corp., a wholly owned subsidiary of Enzon, with Viskase surviving as a wholly owned subsidiary of Enzon.
• The combined company will operate under the name Viskase Holdings, Inc. and is expected to trade on the OTCQX tier of the OTC market.
• The merger is intended to qualify as a tax-free reorganization for U.S. federal income tax purposes.
• Upon closing, Viskase stockholders are expected to own approximately 84.1% of the combined company's common stock.
• Holders of Enzon Common Stock immediately prior to closing are expected to own approximately 2.06% of the combined company.
• Holders of Enzon's Series C Preferred Stock are expected to own approximately 13.84% of the combined company's common stock, assuming full exchange.
• Shares of Enzon's Series C Preferred Stock held by affiliates of Icahn Enterprises Holdings L.P. (IEH) will be exchanged for Enzon Common Stock at a discount to liquidation value.
• Shares of Series C Preferred Stock held by non-affiliates of IEH will have the right to be exchanged for Enzon Common Stock at liquidation value.
• Enzon intends to effect a reverse stock split of its common stock at a ratio between 1-to-2 and 1-to-100, effective immediately prior to the merger.
• The merger agreement was unanimously recommended by special committees and unanimously approved by the Boards of Directors of both Enzon and Viskase.
• The transaction is subject to customary closing conditions, including stockholder approvals from both companies and regulatory approvals (e.g., HSR Act).
• Enzon must have a minimum of $43,045,000 in cash on hand at closing, plus the aggregate liquidation preference of non-IEH Series C Preferred Stock (excluding exchanged shares), minus any IEH Exchange Adjustment (up to $1,000,000).

Sentiment

Score: 7

Explanation: The document announces a definitive merger agreement, which is a positive strategic development for both companies, particularly for Enzon as an acquisition vehicle. The unanimous board approvals and the intention for a tax-free reorganization are favorable. However, the significant dilution for existing Enzon shareholders and the inherent risks associated with any merger temper the overall sentiment.

Positives

• The merger creates a combined entity, Viskase Holdings, Inc., which is expected to trade on the OTCQX tier, potentially enhancing market visibility for Enzon shareholders.
• The transaction is structured as a tax-free reorganization for U.S. federal income tax purposes, which can be beneficial for shareholders.
• The unanimous recommendation by independent special committees and approval by both Boards of Directors suggests a well-vetted and strategically aligned transaction.
• The support agreement from Icahn Enterprises Holdings L.P. (IEH), a significant stakeholder, provides strong backing for the merger and related actions, including the exchange of Series C Preferred Stock.
• The appointment of Viskase's current CEO, Timothy P. Feast, as CEO of the combined company suggests continuity in operational leadership for the primary business.

Negatives

• Existing Enzon common stockholders are expected to own a significantly smaller percentage (~2.06%) of the combined company, indicating substantial dilution.
• The reverse stock split, while potentially necessary for listing, can sometimes be perceived negatively by investors due to historical associations with struggling companies.
• The transaction involves complex exchanges of preferred stock with different terms for affiliates and non-affiliates of IEH, which could lead to complexities or potential disputes.
• The requirement for Enzon to maintain a minimum cash on hand of $43,045,000 plus other amounts at closing could limit Enzon's financial flexibility prior to the merger.

Risks

• The risk that conditions to closing, including necessary stockholder and regulatory approvals, are not satisfied or are not obtained in a timely manner.
• Uncertainties regarding the timing of the consummation of the proposed transaction.
• Viskase's ability to timely deliver the financial statements required by the Merger Agreement.
• The possibility that anticipated benefits of the proposed transaction, such as revenues, expenses, earnings, growth, and tax treatment, may not be realized.
• Potential litigation relating to the proposed transaction that could be instituted against Enzon, Viskase, or their respective officers or directors.
• Possible disruptions from the proposed transaction that could harm Enzon's or Viskase's respective businesses.
• Viskase's ability to retain, attract, and hire key personnel post-merger.
• Potential adverse reactions or changes to relationships with customers, employees, suppliers, or other parties resulting from the announcement or completion of the proposed transaction.
• Potential business uncertainty, including changes to existing business relationships, during the pendency of the proposed transaction that could affect financial performance.
• Certain restrictions during the pendency of the proposed transaction that may impact Enzon's or Viskase's ability to pursue certain business opportunities or strategic transactions.
• The exchange ratio and relative ownership levels as of the closing of the transactions may be subject to adjustments.
• Estimates regarding future revenue, expenses, and capital requirements following the closing may not be accurate.
• Impact of legislative, regulatory, and economic developments.
• Unpredictability and severity of catastrophic events, including acts of terrorism, trade wars, or outbreak of war or hostilities, and management's response to such factors.
• Other risks and uncertainties detailed in the Registration Statement under 'Risk Factors', Enzon's periodic public filings with the SEC, and Viskase's annual and quarterly reports.

Future Outlook

The combined company is expected to operate under the name Viskase Holdings, Inc. and will trade on the OTCQX tier of the OTC market. Timothy P. Feast, current CEO of Viskase, will lead the new entity. The merger is intended to qualify as a tax-free reorganization for U.S. federal income tax purposes. The parties anticipate completing the merger, subject to various closing conditions including stockholder and regulatory approvals.

Management Comments

• The Merger Agreement has been unanimously recommended by a Special Committee of the independent directors of Enzon and a Special Committee of the independent directors of Viskase.
• Acting upon such recommendations, the Merger Agreement has been unanimously approved by the Boards of Directors of each of Enzon and Viskase.
• The Chief Executive Officer of the combined company will be Timothy P. Feast, who is currently the Chief Executive Officer of Viskase.

Industry Context

This merger represents a strategic move for Enzon, which is positioned as a public company acquisition vehicle, to acquire Viskase, a producer of non-edible cellulosic, fibrous, and plastic casings for processed meat products with global manufacturing and sales operations. This indicates Enzon's pivot into the food packaging and processing industry, a significant shift from its pharmaceutical background, aiming to leverage Viskase's established global presence and operational footprint.

Management Changes

Corporate Governance

Legal Proceedings

• Potential litigation relating to the proposed transaction that could be instituted against Enzon, Viskase, or their respective officers or directors.
• Stockholder litigation or claims against Enzon and/or its directors or officers relating to the Merger or other contemplated transactions (Enzon Transaction Litigation).
• Stockholder litigation or claims against Viskase and/or its directors or officers relating to the Merger or other contemplated transactions (Viskase Transaction Litigation).

Related Party Transactions

• Icahn Enterprises Holdings L.P. (IEH) and certain affiliates are parties to a support agreement with Enzon and Viskase, agreeing to deliver written consents for the merger and exchange their Enzon Series C Preferred Stock for Enzon Common Stock at a discount to liquidation value.
• The Private Placement Agreement dated October 9, 2020, between Viskase and Icahn Enterprise Holdings L.P. is to be terminated prior to or concurrently with the Effective Time.

Stakeholder Impact

• **Shareholders (Enzon Common Stock)**: Will experience significant dilution, owning approximately 2.06% of the combined company post-merger. Their shares will also undergo a reverse stock split.
• **Shareholders (Viskase Common Stock)**: Will become the majority owners of the combined company, holding approximately 84.1% of the common stock.
• **Series C Preferred Stock Holders (Enzon)**: Will exchange their preferred stock for common stock, with IEH affiliates receiving a discount and non-affiliates receiving liquidation value, impacting their ownership stake and potentially their investment return.
• **Management/Employees**: Viskase's CEO will become the CEO of the combined company, indicating a leadership transition for Enzon's current management. There are risks related to retaining and attracting key personnel and potential disruptions to employee relationships.
• **Customers/Suppliers**: Potential adverse reactions or changes to relationships with customers and suppliers due to the merger announcement and completion.
• **Regulatory Authorities**: The transaction requires regulatory approvals (e.g., HSR Act), indicating scrutiny and compliance efforts.

Next Steps

• Enzon to prepare and file a registration statement on Form S-4 with the SEC, including a consent solicitation statement.
• Enzon to seek written consent from its stockholders for the Merger Agreement, related transactions, and an amendment to its certificate of incorporation (name change and reverse stock split).
• Viskase to obtain written consent from its stockholders for the Merger Agreement and transactions within 24 hours of execution.
• Enzon to commence an exchange offer for Series C Preferred Stock held by non-affiliates of IEH.
• Enzon to redeem rights and terminate the Section 382 Rights Agreement prior to closing.
• Viskase to take actions necessary to remove Viskase Common Stock from quotation on OTC, effective at the Effective Time.
• Enzon to use commercially reasonable efforts to cause its shares to be listed on OTC, subject to official notice of issuance, prior to the Effective Time.
• Viskase to use commercially reasonable efforts to terminate the Private Placement Agreement with Icahn Enterprise Holdings L.P. prior to or concurrently with the Effective Time.
• The parties will work to satisfy all closing conditions, including regulatory approvals under the HSR Act.

Key Dates

Keywords

Merger Agreement, SEC Filing, 8-K, Enzon Pharmaceuticals, Viskase Companies, Corporate Acquisition, Stock-for-Stock Merger, OTC Markets, OTCQX, Reverse Stock Split, Icahn Enterprises, Series C Preferred Stock, Tax-Free Reorganization, Corporate Governance, Regulatory Approval, Shareholder Approval