DEFA14A: ESSA Pharma to be Acquired by XenoTherapeutics in Cash and CVR Deal

ESSA Pharma Inc. announces a definitive agreement to be acquired by XenoTherapeutics, Inc. through a plan of arrangement, offering shareholders a cash payment and contingent value rights.

Summary

• ESSA Pharma Inc. (the Company) will be acquired by XenoTherapeutics, Inc. (the Parent) via a plan of arrangement.
• Shareholders will receive a cash payment (Cash Amount) and one contingent value right (CVR) per Common Share.
• The Cash Amount is determined by the Company's cash balance at closing, minus certain transaction costs, a reserve for liabilities and legal expenses, and a US$4,000,000 transaction fee to Parent, divided by the total number of issued and outstanding Common Shares.
• Each CVR entitles the holder to a pro rata portion of up to US$2,800,000 (less legal expenses incurred by the Company within 18 months following closing) and US$150,000 (less additional liabilities and expenses of the Company).
• An initial cash distribution of approximately US$1.90 per Common Share (exclusive of CVR payments) is estimated to occur prior to closing, subject to Court approval and Board authorization.
• In-the-money Options will be exchanged for cash (Cash Amount minus exercise price) and one CVR; out-of-the-money Options will be cancelled without payment, and all Options are currently expected to be out-of-the-money.
• Warrants will be exchanged for cash (Cash Amount minus exercise price) and one CVR.
• The Company's Common Shares will be delisted from Nasdaq and deregistered under the U.S. Exchange Act, ceasing public reporting obligations in the U.S. and Canada.
• The Board of Directors unanimously recommends voting FOR the Arrangement Resolution.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive. While the company is being acquired as part of a wind-down, the transaction offers a structured exit for shareholders with a cash component and potential future upside via CVRs, which is a more favorable outcome than a simple liquidation. The unanimous board recommendation also supports this view. However, the delisting and cancellation of out-of-the-money options are negative aspects.

Positives

• Shareholders will receive a cash payment and contingent value rights, providing a defined exit from their investment.
• An estimated initial cash distribution of approximately US$1.90 per Common Share is contemplated prior to closing, offering early liquidity.
• The Board of Directors unanimously recommends the Arrangement, based on the Transaction Committee's recommendation and financial advisor's opinion, indicating strong internal support.
• The transaction provides a structured resolution for the Company's stated plans to discontinue and wind-up its business.

Negatives

• Shareholders will no longer have any rights or interest in ESSA Pharma Inc. following the completion of the Arrangement.
• The Company's Common Shares will be delisted from Nasdaq and deregistered, ceasing public reporting and trading.
• All outstanding Options are currently expected to be out-of-the-money and will be cancelled without any payment to Optionholders.
• A US$4,000,000 transaction fee is payable to the Parent as part of the acquisition costs.
• The Company will incur costs even if the Arrangement is not completed, including a potential termination payment of US$2,500,000.

Risks

• There can be no certainty that all conditions precedent to the Arrangement will be satisfied.
• The market price of the Common Shares may be materially adversely affected if the Arrangement is not completed.
• The Agreement may be terminated in certain circumstances.
• The Company will incur costs even if the Arrangement is not completed, including a potential termination payment of US$2,500,000.
• Directors and officers of the Company have interests in the Arrangement that may be different from those of Securityholders generally.
• The Purchaser and the Company may be targets of legal claims, securities class actions, derivative lawsuits, and other claims.
• The relative trading price of Common Shares prior to the Effective Date may be volatile.
• Securityholders will no longer have any rights or interest in the Company following the completion of the Arrangement.
• There are potential tax consequences in respect of the Arrangement.
• Disruptions from the Transaction could harm the Company's business, including current plans and operations.
• The ability of the Company to retain and hire key personnel may be impacted.
• Potential adverse reactions or changes to business relationships could result from the announcement or completion of the Transaction.
• Unpredictability and severity of catastrophic events, including acts of terrorism, pandemics, outbreaks of war or hostilities, could affect the transaction.
• Significant transaction costs are associated with the Transaction.
• The Transaction may be more expensive to complete than anticipated due to unexpected factors or events.
• Competitive responses to the Transaction could arise.

Future Outlook

The transaction is expected to close in the second half of 2025, contingent on obtaining securityholder, regulatory, and court approvals. Following completion, ESSA Pharma Inc. will be delisted from Nasdaq and cease its public reporting obligations. If the Arrangement is not consummated, the Company will continue to evaluate strategic options for discontinuing and winding up its business, and its shares will remain listed on Nasdaq.

Management Comments

• Based in part on the unanimous recommendation of the Transaction Committee and the opinion of the Transaction Committees financial advisors, the Board recommends unanimously that our Securityholders vote: FOR the special resolution... adopting the Agreement, the Plan of Arrangement and the transactions contemplated thereby.

Industry Context

This transaction represents a strategic exit for ESSA Pharma Inc., which is planning to discontinue and wind-up its business. Such acquisitions, particularly involving contingent value rights, are common in the biotechnology and pharmaceutical sectors for companies with assets or liabilities that require a structured wind-down or where future value is uncertain. XenoTherapeutics, Inc. is acquiring the company, suggesting an interest in its remaining assets or intellectual property, or a clean acquisition of a public shell.

Comparison to Industry Standards

• NA

Legal Proceedings

• The Purchaser and the Company may be targets of legal claims, securities class actions, derivative lawsuits, and other claims related to the Arrangement.
• CVR consideration is subject to deduction for legal expenses incurred by the Company within 18 months following closing.
• CVR payments related to litigation will be made no later than 30 days following the final and non-appealable resolution of such litigation or 18 months following the consummation of the Arrangement, whichever is later.

Stakeholder Impact

• Shareholders will receive cash and CVRs in exchange for their shares, losing direct ownership and future interest in the Company. Those holding out-of-the-money options will receive no payment.
• Employees (Optionholders) with in-the-money options will have them cashed out and receive CVRs; those with out-of-the-money options will have them cancelled without payment.
• The Company (ESSA Pharma Inc.) will cease to exist as an independent public entity, delist from Nasdaq, and cease reporting obligations.
• Directors and Officers have interests in the Arrangement that may be different from those of Securityholders generally.

Next Steps

• The Company will deliver a proxy statement and management information circular (Circular) to Securityholders prior to the Special Meeting.
• Securityholders are encouraged to read the Circular for detailed instructions on voting, delivering share certificates, and receiving consideration.
• The Company is required to convene a Special Meeting on or before September 8, 2025, for Securityholders to consider the Arrangement.
• The Company will apply for an interim order from the Court for an initial cash distribution.
• A further public announcement is expected if the Board approves an initial distribution.
• Assuming Court approval and satisfaction of conditions, the parties expect to close the Transaction in the second half of 2025, within three business days following the Final Order.
• The Company will apply to cease to be a reporting issuer in British Columbia, Alberta, and Ontario following completion.
• The rights agent will pay CVR consideration within 30 days following final determination of cash adjustment or 30 days following final resolution of litigation (or 18 months post-Arrangement, whichever is later).

Key Dates

Recommendation

Keywords

ESSA Pharma, XenoTherapeutics, acquisition, merger, plan of arrangement, contingent value right, CVR, delisting, Nasdaq, SEC filing, proxy statement, corporate action, biotechnology, pharmaceutical, M&A