Tolmar to acquire Zila

Jun 25, 2009

Zila has entered into a deal to be acquired by Tolmar Holding, a privately held pharmaceutical research, development, manufacturing, and commercial operations company.

Under terms of the agreement, Tolmar will acquire all of the outstanding shares of Zila for a cash purchase price of 38¢ per share (approximately $3.97 million, based upon the number of outstanding shares), representing an approximate premium of 18% over the closing price of Zila's shares on June 24, 2009. The total consideration paid by Tolmar also includes the purchase of Zila's existing $12 million senior secured convertible debt at a discount.

Upon completion of the proposed merger, which is expected in August, Zila will no longer be a publicly traded company. Zila makes ViziLite Plus, a technology for the early detection of oral abnormalities that could lead to cancer.

The deal couldn't be timelier for Zila, which on June 10 announced that it needed additional funds or a debt restructuring to continue as a going concern or avoid bankruptcy. Earlier this month the company reported a net loss of $1.5 million on revenues of $8.5 million for the third quarter of 2009 (end-April 30).

The company reported a net loss of $29.6 million on revenues of $26.6 million for the nine-month period, compared with a net loss of $14.1 million on revenues of $33.2 million for the first nine months of 2008.

"We are fortunate to have entered into this merger agreement with Tolmar, given Zila's current financial condition and our inability to access the financial markets," said Zila Chairman and CEO David Bethune in a press release. "The board of directors conducted a substantial and exhaustive review of Zila's available alternatives before concluding that this transaction was fair to, and in the best interest of, the company and its stockholders."

Tolmar develops and manufacturers proprietary and generic pharmaceutical products for dental, dermatology, and oncology applications. The company's lead dental product is Atridox, a locally applied antimicrobial that is clinically proven for the following indications: gain in clinical attachment, reduction in probing depth, and reduction in bleeding on probing. Tolmar also manufactures and sells Atrisorb FreeFlow and Atrisorb-D FreeFlow, bioabsorbable guided tissue regeneration barriers for use in periodontal surgical procedures.

"Zila's products and product line are focused mostly on periodontal disease, and we were looking for something to create a competitive advantage in the dental space that would allow us to go into the dentist's office and offer them the full spectrum of soft-tissue treatment options," said Tolmar CEO Mike Duncan. "We wanted a way to not just increase our presence in dentistry but create a world class dental company."

ViziLite will also be a key part of this strategy, he added. "What we like about Zila is the periodontal products, but what we love about Zila is ViziLite," Duncan said. "We feel that putting these two companies together could create a highly competitive dental company."

The proposed transaction is subject to customary closing conditions, including approval by Zila's stockholders, but is not subject to any financing contingency. The board of directors has approved the merger and resolved to recommend that Zila's stockholders vote in favor of completing the proposed merger with Tolmar. The company plans to hold a special meeting of its stockholders "as soon as practicable," according to the press release.