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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): September 30, 1996
FRESENIUS USA, INC.
(Exact name of registrant as specified in its charter)
Massachusetts
(State or other jurisdiction of incorporation)
1-8350 04-2550576
(Commission File Number) (IRS Employer Identification No.)
2637 Shadelands Drive Walnut Creek, California 94598
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (510) 295-0200
Not applicable
(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS
On September 30, 1996, the Registrant completed the reorganization (the
"Reorganization") described in the Joint Proxy Statement-Prospectus of Fresenius
Medical Care Aktiengesellschaft ("Fresenius Medical Care"), W. R. Grace & Co.
("Grace") and the Registrant dated August 2, 1996 ("Proxy
Statement-Prospectus"). The Reorganization was accomplished pursuant to the
Agreement and Plan of Reorganization dated as of February 4, 1996, as amended to
the date hereof (the "Reorganization Agreement"), among Grace, Fresenius AG and
the Registrant. Stockholders of the Registrant approved the Reorganization on
September 16, 1996. As part of the Reorganization, FUSA Merger Sub Inc., a
Massachusetts corporation and a wholly owned subsidiary of Fresenius Medical
Care (a German corporation) merged with and into the Registrant (the "FUSA
Merger") with the Registrant the surviving corporation. In the FUSA Merger,
shareholders of the Registrant (other than Fresenius AG, Grace and their
respective subsidiaries) received .37067735 Ordinary Shares of Fresenius Medical
Care, evidenced by American Depositary Shares represented by American Depositary
Receipts, for each share of common stock of the Registrant held by them. All of
the capital stock of the Registrant will shortly be contributed to Fresenius
National Medical Care Holdings, Inc. ("FNMC," formerly known as W. R. Grace &
Co.), a subsidiary of Fresenius Medical Care.
The nature and amount of consideration issued to shareholders of the
Registrant is described in the Proxy Statement-Prospectus under the caption "THE
REORGANIZATION -- Consideration to Shareholders." The amount of such
consideration was determined in the course of arm's length negotiations between
Fresenius AG and an independent committee of the Registrant's Board of
Directors, as described in the Proxy Statement-Prospectus under the captions
"BACKGROUND AND REASONS -- Background of the Reorganization; Reasons for the
Recommendation of the Fresenius USA Board" and "-- Recommendation of the
Fresenius USA Independent Committee and the Board of Directors."
Following the FUSA Merger, the American Stock Exchange ("AMEX")
suspended trading, effective before the opening of business on September 30,
1996, in the common stock, par value $.01 per share, of the Registrant
("Fresenius USA Common Stock") (AMEX: FRN).
As a result of the FUSA Merger, the Registrant has become an indirect
wholly-owned subsidiary of Fresenius Medical Care AG. An application was made to
the Securities and Exchange Commission (the "Commission") to delist the
Fresenius USA Common Stock on October 2, 1996. It is anticipated that this
application will be granted. Therefore, it is not anticipated that the
Registrant will continue to file reports, proxy statements and other information
with the Commission under the Securities Exchange Act of 1934 (the "Exchange
Act").
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Businesses Acquired
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Not applicable
(b) Pro Forma Financial Information
Not applicable
(c) Exhibits
Exhibit 2.1 Agreement and Plan of Reorganization dated as of February
4, 1996, as amended, among W. R. Grace & Co., Fresenius AG and
the Registrant (incorporated herein by reference to the Joint
Proxy Statement-Prospectus of Fresenius Medical Care AG, W. R.
Grace & Co. and the Registrant dated August 2, 1996 and filed
with the Commission on August 5, 1996).
Exhibit 99.1 The information in the Joint Proxy Statement-Prospectus
of the Registrant, W. R. Grace & Co. and Fresenius Medical
Care AG dated August 2, 1996 set forth under the captions
"BACKGROUND AND REASONS -- Background of the Reorganization;
Reason for the Recommendation of the Fresenius USA Board" at
pages 47-50, "-- Recommendation of the Fresenius USA
Independent Committee and the Board of Directors" at pages
50-57 and "THE REORGANIZATION -- Consideration to
Shareholders" at pages 60-61.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FRESENIUS USA, INC.
DATE: October 15, 1996 By: /s/ Dr. Ben J. Lipps
------------------------------
Name: Dr. Ben J. Lipps
Title: President and Chief
Executive Officer
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EXHIBIT INDEX
Exhibit 2.1 Agreement and Plan of Reorganization dated as of February
4, 1996, as amended, among W. R. Grace & Co., Fresenius AG and
the Registrant (incorporated herein by reference to the Joint
Proxy Statement-Prospectus of Fresenius Medical Care AG, W. R.
Grace & Co. and the Registrant dated August 2, 1996 and filed
with the Commission on August 5, 1996).
Exhibit 99.1 The information in the Joint Proxy Statement-Prospectus
of the Registrant, W. R. Grace & Co. and Fresenius Medical
Care AG dated August 2, 1996 set forth under the captions
"BACKGROUND AND REASONS -- Background of the Reorganization;
Reason for the Recommendation of the Fresenius USA Board" at
pages 47-50, "-- Recommendation of the Fresenius USA
Independent Committee and the Board of Directors" at pages
50-57 and "THE REORGANIZATION -- Consideration to
Shareholders" at pages 60-61.
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Exhibit 99.1
BACKGROUND OF THE REORGANIZATION; REASONS FOR THE RECOMMENDATION OF THE
FRESENIUS USA BOARD
The following discussion regarding the reasons for the recommendation
of the Fresenius USA Board reflects the initial proposed capitalization for
Fresenius Medical Care of 217,170,000 FMC Ordinary Shares (with each ADS
evidencing one FMC Ordinary Share) and has not been adjusted to reflect the
final capitalization of 70,000,000 FMC Ordinary Shares (or the fact that three
ADSs represent one FMC Ordinary Share).
The Fresenius USA Board has unanimously approved the Reorganization and
the transactions contemplated thereby, including the Fresenius USA Merger and
the Fresenius USA Plan Amendment, and has determined that such transactions are
fair to, and in the best interests of, the stockholders of Fresenius USA. The
Fresenius USA Board unanimously recommends that Fresenius USA stockholders vote
for approval of the Reorganization Agreement including the Fresenius USA
Merger, and the Fresenius USA Plan Amendment.
At a meeting of the Fresenius USA Board on January 25, 1996, Fresenius
AG informed the Fresenius USA Board of the proposed Reorganization. After a
discussion concerning the structure of the proposed Reorganization, the
Fresenius USA Board voted unanimously to establish the Fresenius USA
Independent Committee comprised of the three Fresenius USA independent
directors, Robert S. Ehrlich, James F. Marten and Francis E. Baker, and
delegated to the Fresenius USA Independent Committee the authority to consider,
negotiate, and authorize the economic terms of the participation of the public
stockholders of Fresenius USA, other than Fresenius AG, Grace and their
respective subsidiaries (the "Fresenius USA Public Stockholders") in the
proposed Reorganization. The Fresenius USA Board further authorized the
Fresenius USA Independent Committee to retain, at Fresenius USA's expense,
necessary advisors, including an investment banking firm and legal counsel.
The Fresenius USA Independent Committee met later that day by telephone
to discuss the selection of financial and legal advisors. The Fresenius USA
Independent Committee discussed the importance of retaining a financial advisor
with the experience and expertise appropriate to review whether the proposed
Reorganization was fair to the public stockholders of Fresenius USA from a
financial viewpoint, and also agreed that experience in the health care
industry was a significant consideration. The Fresenius USA Independent
Committee decided to retain Ropes & Gray as its legal advisor because of its
experience representing Fresenius USA and in particular its experience
representing Fresenius USA's public minority in previous arm's-length
negotiations between Fresenius USA and Fresenius AG. Ropes & Gray informed the
Fresenius USA Independent Committee that, in connection with its role as
counsel to Fresenius USA, Ropes & Gray has, from time to time, rendered advice
to directors and officers of Fresenius USA regarding how to structure certain
personal transactions involving securities of Fresenius USA. The Fresenius USA
Independent Committee met again several times during the ensuing week, during
which time it elected Mr. Ehrlich Chairman and conferred with, and received
legal advice from, Ropes & Gray.
After the execution of the Reorganization Agreement by Fresenius AG and
Grace on February 4, 1996, Fresenius AG orally conveyed a proposal to the
Fresenius USA Independent Committee to exchange 3.8% of the equity of Fresenius
Medical Care, or .77 of an FMC Ordinary Share per share of Fresenius USA Common
Stock, on a fully diluted basis, as the consideration to the Fresenius USA
Public Stockholders in the proposed Fresenius USA Merger (the "First
Proposal"). Fresenius USA issued a press release on February 5, 1996,
announcing its receipt of the First Proposal.
On February 12, 1996, Fresenius AG's financial advisor, Dresdner
Securities (USA) Inc. ("Dresdner Securities"), presented the First Proposal and
explained the calculation thereof to the Fresenius USA Independent Committee
and its legal counsel. Dresdner Securities and Fresenius AG also summarized the
terms of the Reorganization and the Reorganization Agreement, and responded to
questions from the
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Fresenius USA Independent Committee and its counsel concerning the structure of
the Reorganization, the future financing needs of Fresenius Medical Care, the
debt to be assumed by Fresenius Medical Care in the Reorganization, and the
value of the FMC Ordinary Shares.
On February 13, 1996, after considering proposals and interviewing
numerous prospective financial advisors, the Fresenius USA Independent
Committee retained Salomon Brothers as its financial advisor, and signed an
engagement letter, dated February 13, 1996, to that effect. The Committee
directed Salomon Brothers to undertake an evaluation of the Reorganization and
to communicate with Fresenius AG's financial advisors in order to assist the
Fresenius USA Independent Committee in its negotiations with Fresenius AG. In
addition, Salomon Brothers was charged with evaluating the fairness, from a
financial point of view, of the proposals made by Fresenius AG with regard to
the exchange ratio for the exchange of Fresenius USA Common Stock for FMC
Ordinary Shares held by the Fresenius USA Public Stockholders under the terms
of the proposed Reorganization.
On February 13, 1996, Dresdner Securities explained to Salomon Brothers
the financial terms of the First Proposal and described the methodology and
basis for calculating the share exchange ratio underlying the First Proposal.
Dresdner Securities and Fresenius AG also summarized the terms of the
Reorganization and the Reorganization Agreement.
Between February 13 and March 19, 1996, the Fresenius USA Independent
Committee and its legal and financial advisors met on a regular basis to
discuss the First Proposal and the transactions contemplated by the
Reorganization Agreement. Ropes & Gray and Salomon Brothers performed an
extensive due diligence review of Fresenius AG, NMC and the proposed
transactions, and Salomon Brothers conducted comprehensive and detailed
economic valuations of Fresenius USA, Fresenius Worldwide Dialysis, NMC and
Fresenius Medical Care. In addition, during this time, Mr. Ehrlich met several
times with Salomon Brothers and discussed in detail the economic models that
Salomon Brothers would use for valuing Fresenius USA, NMC, Fresenius Worldwide
Dialysis, and Fresenius Medical Care.
The Fresenius USA Independent Committee met on March 19, 1996 with its
legal and financial advisors. Ropes & Gray presented the Fresenius USA
Independent Committee with the results of its review of Fresenius AG and NMC,
tax issues implicated by the transaction, the OIG Investigation and other
government investigations of NMC and the potential asbestos liability of New
Grace. Salomon Brothers then presented its analysis. As described below in
"-- Recommendation of the Fresenius USA Independent Committee and the Board of
Directors -- Opinion of Salomon Brothers," this analysis included a preliminary
valuation of Fresenius Medical Care (based on the component parts -- NMC and
Fresenius Worldwide Dialysis) and Fresenius USA. This analysis included but was
not limited to the following methodologies to value the business; the
historical and current market for the Fresenius USA Common Stock and for the
equity securities of certain other companies comparable to Fresenius USA,
Fresenius Worldwide Dialysis, NMC or Fresenius Medical Care; discounted cash
flow analysis of each of Fresenius USA, NMC and Fresenius Worldwide Dialysis;
and the nature and terms of certain other transactions believed to be relevant.
This analysis also included a revision of the First Proposal. Salomon Brothers
explained that, in evaluating the offer made to the Fresenius USA Public
Stockholders, Salomon Brothers' analysis focused on the future prospects of
each of the component companies of Fresenius Medical Care. Salomon Brothers
described the various methodologies used in valuing Fresenius Medical Care and
the possible synergies created by the Reorganization, and advised the Fresenius
USA Independent Committee that the First Proposal was below market value and
that the Fresenius USA Independent Committee should continue to negotiate to
maximize stockholder value.
Between March 19 and the end of April 1996, the Fresenius USA
Independent Committee met at least twice weekly by telephone conference call to
receive advice from and give direction to its legal and financial advisors in
connection with its review of the Reorganization. At the request of the
Fresenius USA Independent Committee, Salomon Brothers met with Dresdner
Securities on March 21, 1996, to discuss Fresenius AG's First Proposal. Salomon
Brothers informed Dresdner Securities that Salomon Brothers disagreed, as an
economic matter, with Dresdner Securities' valuation assumptions,
methodologies, and conclusions, and further stated that Salomon Brothers
believed that the First Proposal was inadequate and that
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the Fresenius USA Independent Committee would require the best price reasonably
available to the Fresenius USA Public Stockholders. Salomon Brothers stated
that the Fresenius USA Independent Committee was flexible as to how the
consideration could be structured.
The Fresenius USA Independent Committee informed Fresenius AG on March
26 that the Fresenius USA Independent Committee believed that the public
stockholders of Fresenius USA should receive a premium above the current market
value. The Fresenius USA Independent Committee asked Fresenius AG to meet with
representatives of Salomon Brothers so that they could present their valuations
of the Reorganization and the entities created thereby. Salomon Brothers
presented its valuation to Dr. Gerd Krick, Chairman of the Management Board of
Fresenius AG (the "Fresenius AG Management Board"), on March 29, 1996. Salomon
Brothers informed Fresenius AG that the Fresenius USA Independent Committee
believed the First Proposal was inadequate. Between April 3 and April 11, 1996,
Salomon Brothers and Dresdner Securities met on several occasions and explored
different means of providing the Fresenius USA Public Stockholders with the
greatest consideration reasonably available, including the use of consideration
other than FMC Ordinary Shares.
At a meeting on April 11, 1996, Salomon Brothers informed the Fresenius
USA Independent Committee that Fresenius AG was exploring the possibility of
offering Fresenius USA's stockholders a non-voting preferred stock instead of
FMC Ordinary Shares and advised that such a security would trade at a discount
to FMC Ordinary Shares. A discussion ensued regarding the value of different
forms of consideration and the strengths and weaknesses of each form for the
Fresenius USA Public Stockholders. Salomon Brothers advised that the Fresenius
USA Independent Committee negotiate further with Fresenius AG to maximize the
value offered to the Fresenius USA Public Stockholders in exchange for their
shares of Fresenius USA Common Stock.
On April 16, 1996, Fresenius AG informed the Fresenius USA Independent
Committee that it would offer 1.045 FMC Ordinary Shares for each publicly held
share of Fresenius USA Common Stock (assuming that Fresenius Medical Care would
issue 217,170,000 FMC Ordinary Shares and assuming a maximum of 10,183,123
shares of Fresenius USA Common Stock) (the "Second Proposal"). After
consultation with its advisors, the Fresenius USA Independent Committee
rejected the Second Proposal as providing, in the Fresenius USA Independent
Committee's view, inadequate value for the Fresenius USA Public Stockholders.
The Fresenius USA Independent Committee proposed including cash as a portion of
the consideration paid to the Fresenius USA Public Stockholders and were told
that Fresenius AG would not pay cash for any portion of the Fresenius USA
Common Stock.
On April 18, 1996, Salomon Brothers participated with Ropes & Gray in
further negotiations with representatives of Fresenius AG. On April 21, 1996,
Fresenius AG presented to the Fresenius USA Independent Committee its offer to
exchange 1.15 FMC Ordinary Shares for each share of Fresenius USA Common Stock
held by the Fresenius USA Public Stockholders (assuming that Fresenius Medical
Care would issue 217,170,000 FMC Ordinary Shares and assuming a maximum of
9,253,331 outstanding shares of Fresenius USA Common Stock held by persons
other than Fresenius AG, Grace and their respective subsidiaries), (the
"Third Proposal"). The Fresenius USA Independent Committee sought from and
explored with Fresenius AG the possibility of additional consideration and were
informed by Fresenius AG that the Third Proposal was its highest offer. The
Fresenius USA Independent Committee discussed the Third Proposal with its legal
and financial advisors at a meeting on April 22, 1996. After extensive
consultation, the Fresenius USA Independent Committee, believing that it had
negotiated the highest consideration reasonably attainable for the Fresenius
USA Public Stockholders, determined that the Third Proposal was a strong offer
and that it would make a decision with respect to whether the offer was fair
to, and in the best interests of, the Fresenius USA Public Stockholders when it
received a formal opinion from its financial advisors. On April 25, 1996,
Salomon Brothers gave its oral opinion as to the fairness from a financial
point of view of the Third Proposal. Subsequently, the Fresenius USA
Independent Committee was informed that Fresenius Medical Care would issue
70,000,000 FMC Ordinary Shares (instead of 217,170,000 as previously
anticipated) and that the Third Proposal was, therefore, equivalent to an
exchange of 0.37067735 FMC Ordinary Shares for each share of Fresenius USA
Common Stock held by the Fresenius USA Public Stockholders.
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On May 8, 1996, Salomon Brothers delivered its written opinion to the
Fresenius USA Independent Committee that the exchange ratio of 0.37067735 FMC
Ordinary Shares (having given effect to the new capitalization) to be issued in
exchange for each share of Fresenius USA Common Stock was fair to the public
stockholders of Fresenius USA from a financial point of view. After full and
frank discussion, the Fresenius USA Independent Committee determined unanimously
that the Reorganization Agreement and the Fresenius USA Merger were fair to and
in the best interests of the Fresenius USA Public Stockholders. See
"--Recommendation of the Fresenius USA Independent Committee and the Board of
Directors--Opinion of Salomon Brothers." The Fresenius USA Independent Committee
then voted unanimously to recommend that the Fresenius USA Board approve the
Reorganization Agreement and the Fresenius USA Merger, and to recommend to the
Fresenius USA Public Stockholders that they vote in favor of the Reorganization
Agreement and the Fresenius USA Merger.
RECOMMENDATION OF THE FRESENIUS USA INDEPENDENT COMMITTEE AND THE BOARD OF
DIRECTORS
At a meeting held on May 8, 1996, the Fresenius USA Independent Committee
recommended unanimously to the full Fresenius USA Board that it approve the
Reorganization Agreement and the Fresenius USA Merger. Immediately thereafter,
the full Fresenius USA Board met and voted unanimously to approve the
Reorganization Agreement and to recommend that the holders of Fresenius USA
Common Stock vote in favor of the Reorganization Agreement and the Fresenius USA
Merger. The Fresenius USA Board, including all of the Fresenius USA Independent
Directors, believes that the transactions contemplated by the Reorganization
Agreement and the Fresenius USA Merger are in the best interests of Fresenius
USA and its stockholders. The terms of the Reorganization are the result of
arm's-length negotiations between Fresenius AG and Grace, each party conducting
its own analysis and acting with the advice of its own legal counsel,
independent accountants and financial advisors. The consideration payable to
Fresenius USA Public Stockholders was determined as a result of arm's-length
negotiations between the Fresenius USA Independent Committee and Fresenius AG.
In reaching their conclusion to recommend approval of the Reorganization
Agreement and the Fresenius USA Merger, the Fresenius USA Independent Committee
took into account a number of factors, including the factors discussed below in
"--Opinion of Salomon Brothers" and the following:
- the holders of Fresenius USA Common Stock will hold equity interests in
the new global dialysis company, Fresenius Medical Care, and will be able
to benefit from the synergies which the Fresenius USA Independent
Committee and its advisors believe will result from the Reorganization;
- the opinion of Salomon Brothers, the Fresenius USA Independent
Committee's financial advisors, that the consideration per share to be
received by the holders of Fresenius USA Common Stock in the Fresenius
USA Merger is fair to such holders (other than Fresenius AG, Grace and
their respective subsidiaries) from a financial point of view (see
"--Opinion of Salomon Brothers");
- the FMC Ordinary Shares to be issued in the Fresenius USA Merger will
trade on the NYSE as ADRs representing ADSs;
- the tax effects of the proposed Reorganization to Fresenius Medical Care
and to Fresenius USA and its stockholders, as described under "CERTAIN
INCOME TAX CONSEQUENCES OF THE TRANSACTIONS TO HOLDERS OF FRESENIUS USA
COMMON STOCK;"
- the Reorganization Agreement expressly provides that nothing in such
agreement shall be construed to prevent the Fresenius USA Independent
Committee from making a determination with respect to the adequacy of the
consideration payable to the Fresenius USA Public Stockholders or the
entire fairness of the transaction to the public stockholders of
Fresenius USA, consistent with their fiduciary duties;
- the fact that, while Fresenius AG would own a majority of the voting
securities of Fresenius Medical Care, Fresenius AG has agreed that at
least two members of the FMC Supervisory Board to be elected by the
shareholders will be persons who do not have any substantial professional
relationship with Fresenius Medical Care, Fresenius AG, or any of their
respective affiliates, and has also agreed to
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certain protections for minority shareholders as set forth under
"DESCRIPTION OF THE POOLING AGREEMENT;"
* the belief of the Fresenius USA Independent Committee, based in part
on the presentation by representatives of Salomon Brothers which
included, among other things, valuation analyses with respect to
Fresenius Medical Care and Fresenius USA, that the per share
consideration payable to the Fresenius USA Public Stockholders was,
on May 8, 1996, worth more than the then current fair market value of
a share of Fresenius USA Common Stock; and
* the various risks involved in the Reorganization that are more fully
described under "RISK FACTORS."
The negotiations between the Fresenius USA Independent Committee and
Fresenius AG dealt solely with the economic terms for the participation of
the Fresenius USA Public Stockholders in the Reorganization. The Fresenius USA
Independent Committee did not propose or request any changes or revisions to
the provisions of the Reorganization Agreement allocating 44.8% of the equity
securities of Fresenius Medical Care to Grace and 55.2% of such equity
securities to Fresenius AG and the Fresenius USA Public Stockholders, to the
requirement of the Reorganization Agreement that Fresenius AG receive not less
than 51% of Fresenius Medical Care's outstanding securities on a fully diluted
basis, or to any other provisions of the Reorganization Agreement as to Grace
and Fresenius AG. However, as a result of those negotiations, Grace agreed that
the percentage of FMC Ordinary Shares required to be held by Fresenius AG would
be reduced to 50.3%. See "THE REORGANIZATION -- Additional Agreements of
Fresenius USA."
The foregoing discussion of the information and factors taken into
account by the Fresenius USA Independent Committee, though not exhaustive,
includes all the material factors considered by the Fresenius USA Independent
Committee. With the exception of the regulatory and governmental investigations
relating to the conduct of NMC's business, the Fresenius USA Independent
Committee does not believe that any of these factors can generally be
characterized as positive or negative, but involve matters of valuation and
business judgment. (See -- "BUSINESS OF FRESENIUS MEDICAL CARE -- Regulatory
and Legal Matters").
THE FRESENIUS USA BOARD UNANIMOUSLY RECOMMENDS THAT FRESENIUS USA
STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT AND
THE TRANSACTIONS CONTEMPLATED THEREBY, AND FOR APPROVAL OF THE FRESENIUS USA
PLAN AMENDMENT.
See "BUSINESS OF FRESENIUS MEDICAL CARE -- Business of Fresenius USA --
Material Contracts between Fresenius AG and Fresenius USA" for a description of
certain historical relationships between Fresenius AG and Fresenius USA.
OPINION OF SALOMON BROTHERS
Salomon Brothers was retained subsequent to the execution by Fresenius
AG and Grace of the Reorganization Agreement to act as a financial advisor to
the Fresenius USA Independent Committee to assist the Fresenius USA Independent
Committee in connection with the Reorganization. Salomon Brothers was selected
by the Fresenius USA Independent Committee because of its reputation, its
experience with similar transactions and its knowledge of the health care
industry. Salomon Brothers is an internationally recognized investment banking
firm continuously engaged in the valuation of businesses and their securities
in connection with mergers and acquisitions, negotiated underwritings,
competitive bidding, secondary distributions, and for corporate and other
purposes.
On April 25, 1996, Salomon Brothers orally rendered its opinion to the
effect subsequently set forth in its written opinion described below. Salomon
Brothers has delivered its written opinion, dated May 8, 1996, to the Fresenius
USA Independent Committee to the effect that, based upon and subject to various
considerations set forth in such opinion, as of that date, the exchange ratio
(the "Fresenius USA Public Stockholder Exchange Ratio") of 0.37067735 FMC
Ordinary Shares (having given effect to the new capitalization) to be issued in
exchange for each share of Fresenius USA Common Stock held by the Fresenius USA
Public
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Stockholders in the Fresenius USA Merger, pursuant to the Reorganization
Agreement, was fair from a financial point of view to the holders of Fresenius
USA Common Stock (other than Fresenius AG and Grace and their subsidiaries). In
rendering its opinion Salomon Brothers assumed, with the consent of the
Fresenius USA Independent Committee, that pursuant to the Reorganization
Agreement, immediately after the consummation of the Reorganization there would
be 70,000,000 outstanding FMC Ordinary Shares on a fully diluted basis,
resulting in the Fresenius USA public stockholders owning an aggregate of 4.9%
of FMC Ordinary Shares outstanding on a fully diluted basis immediately
following the Reorganization. Salomon Brothers also assumed that immediately
prior to the Fresenius USA Merger, there would be outstanding no more than
9,253,331 Fresenius USA Common Share Equivalents (i.e., the aggregate number of
shares of Fresenius USA Common Stock (i) outstanding and (ii) underlying
options, warrants and convertible securities of Fresenius USA) as required by
the Reorganization Agreement.
THE FULL TEXT OF SALOMON BROTHERS' OPINION TO THE FRESENIUS USA
INDEPENDENT COMMITTEE, DATED MAY 8, 1996, WHICH SETS FORTH ASSUMPTIONS MADE,
MATTERS CONSIDERED AND LIMITS ON THE REVIEW UNDERTAKEN BY SALOMON BROTHERS, IS
ATTACHED AS APPENDIX D TO THIS JOINT PROXY STATEMENT-PROSPECTUS AND IS
INCORPORATED HEREIN BY REFERENCE. SALOMON BROTHERS' OPINION DELIVERED TO THE
INDEPENDENT COMMITTEE WAS DIRECTED ONLY TO THE FRESENIUS USA PUBLIC STOCKHOLDER
EXCHANGE RATIO IN THE FRESENIUS USA MERGER AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY FRESENIUS USA STOCKHOLDER AS TO HOW SUCH STOCKHOLDER
SHOULD VOTE AT THE FRESENIUS USA SPECIAL MEETING. THE SUMMARY OF THE SALOMON
BROTHERS OPINION SET FORTH IN THIS JOINT PROXY STATEMENT-PROSPECTUS IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
FRESENIUS USA STOCKHOLDERS ARE URGED TO READ CAREFULLY SUCH OPINION IN ITS
ENTIRETY.
In arriving at its opinion, Salomon Brothers reviewed and analyzed
(i) the Reorganization Agreement, the Distribution Agreement and the
Contribution Agreement, (ii) a draft of this Joint Proxy Statement-Prospectus,
(iii) certain publicly available information concerning Fresenius USA, Grace,
NMC and Fresenius AG, (iv) certain pro forma financial and other information
concerning Fresenius Worldwide Dialysis furnished to Salomon Brothers by
Fresenius AG, (v) certain other internal information, primarily financial in
nature, including projections, concerning the business and operations of each of
Fresenius USA, NMC and Fresenius Worldwide Dialysis furnished to Salomon
Brothers by the respective companies, (vi) certain estimates of anticipated
synergies furnished to Salomon Brothers by Fresenius USA, NMC, Grace and
Fresenius AG, (vii) certain publicly available information concerning the
trading of, and the trading market for, Fresenius USA Common Stock, Grace Common
Stock and Fresenius AG Ordinary Shares, (viii) certain publicly available
information with respect to certain other companies that Salomon Brothers
believed to be comparable to Fresenius USA, NMC or Fresenius Worldwide Dialysis
and the trading markets for certain of such other companies' securities, and
(ix) certain publicly available information concerning the nature and terms of
certain other transactions that Salomon Brothers considered relevant to its
inquiry. The information reviewed by Salomon Brothers included preliminary
versions of the pro forma financial information of Fresenius Medical Care
contained in this Joint Proxy Statement-Prospectus. Salomon Brothers believes
that the differences between the pro forma financial information of Fresenius
Medical Care contained in this Joint Proxy Statement-Prospectus and the
preliminary versions of such financial information reviewed by Salomon Brothers
would not have had a material effect on Salomon Brothers' analysis. Salomon
Brothers also considered such other information, studies, analyses, and
financial, economic, market criteria as it deemed relevant. In addition, Salomon
Brothers discussed the foregoing as well as other matters it believed relevant
to its inquiry with certain officers, employees and representatives of Fresenius
USA, NMC, Fresenius Worldwide Dialysis, Grace and Fresenius AG.
In arriving at its opinion, and in its April 25, 1996 presentation to
the Fresenius USA Independent Committee referred to below, Salomon Brothers did
not assume any obligations to verify any of the foregoing information and
relied on such information being complete and accurate in all material
respects. With respect to the projections as to the future financial
performances of Fresenius USA, NMC, Fresenius Worldwide
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Dialysis and the estimates of synergies for Fresenius Medical Care, Salomon
Brothers assumed they had been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the managements of Fresenius
USA, NMC and Fresenius Worldwide Dialysis, and Salomon Brothers expressed no
opinion with respect to such projections or estimates or the assumptions on
which they were based. Salomon Brothers did not make or obtain or assume any
responsibility for making or obtaining any independent evaluations or appraisals
of any of the properties or facilities of Fresenius USA, NMC or Fresenius
Worldwide Dialysis.
While the Fresenius USA Independent Committee did not perform an
independent review of the financial information, projections and assumptions
provided to Salomon Brothers, Salomon Brothers did review certain financial
information and projections with the Fresenius USA Independent Committee. When
it accepted Salomon Brothers' fairness opinion, the Fresenius USA Independent
Committee was aware of Salomon Brothers' reliance on the information provided
by the managements of Fresenius USA, NMC and Fresenius AG.
In arriving at its opinion, Salomon Brothers considered such financial
and other factors as it deemed appropriate under the circumstances including,
among others, the following: (i) the historical and current financial position
and results of operations of Fresenius USA, NMC and Fresenius Worldwide
Dialysis; (ii) the business prospects of Fresenius USA, NMC, Fresenius
Worldwide Dialysis and Fresenius Medical Care; (iii) the historical and current
market for Fresenius USA Common Stock and for the equity securities of certain
other companies that Salomon Brothers believed to be comparable to Fresenius
USA, Fresenius Worldwide Dialysis, NMC or Fresenius Medical Care; and (iv) the
nature and terms of certain other transactions that Salomon Brothers believed
to be relevant. Salomon Brothers also took into account its assessment of
general economic, market and financial conditions as well as its experience in
connection with similar transactions and securities valuation generally. No
limitations were imposed by either Fresenius USA or Fresenius AG with respect
to the investigations made or the procedures followed by Salomon Brothers in
rendering its opinion. However, since Fresenius AG owns a majority of the
fully-diluted outstanding shares of Fresenius USA Common Stock and, pursuant to
the Reorganization Agreement, was prohibited from selling such shares, Salomon
Brothers was not authorized to, and did not, solicit potential third parties
that might have been interested in acquiring Fresenius USA.
In arriving at its opinion, Salomon Brothers understood that NMC is the
target of certain governmental and regulatory investigations relating to the
conduct of its business, which may result in substantial liabilities and
obligations being incurred by NMC in the future, as described in this Joint
Proxy Statement-Prospectus under "RISK FACTORS -- Risks Relating to Regulatory
Matters." While Salomon Brothers participated with the Fresenius USA
Independent Committee in discussions with the special counsel of the Fresenius
USA Independent Committee with respect to the potential outcome thereof, it was
not possible to predict that outcome and Salomon Brothers expressed no view
with respect thereto, although, in conducting its analysis and rendering its
opinion, it did, with the consent of the Fresenius USA Independent Committee,
make certain assumptions with respect thereto. In addition, in rendering its
opinion, Salomon Brothers assumed, with the consent of the Fresenius USA
Independent Committee, that (i) the Fresenius USA Merger would qualify as a
tax-free transaction under Section 351 of the Code; (ii) the transactions
contemplated by the Distribution Agreement would qualify as a tax-free
distribution under Section 355 of the Code; (iii) following the transactions
contemplated by the Distribution Agreement, Grace would have no material
liabilities other than the liabilities of NMC; (iv) Grace Chemicals and
Fresenius AG would perform their respective obligations (including
indemnification obligations) under the Distribution Agreement and the
Contribution Agreement in accordance with their respective terms; and (v) the
Reorganization would not constitute a fraudulent conveyance or fraudulent
transfer under any applicable law and that the Reorganization would comply with
applicable U.S., foreign, federal and state laws, including, without limitation,
laws limiting payments of dividends and distributions to stockholders.
Salomon Brothers' opinion was necessarily based upon conditions as they
existed upon, and could be evaluated as of, the date of its opinion, and
Salomon Brothers assumed no responsibility to update or revise its opinion
based upon circumstances or events occurring after the date of its opinion.
Salomon Brothers' opinion related solely to the fairness, from a financial
point of view, of the Public Stockholder Exchange Ratio to the
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holders of Fresenius USA Common Stock (other than Fresenius AG and Grace and
their subsidiaries) and did not address Fresenius USA's underlying business
decision to effect the Fresenius USA Merger or constitute a recommendation to
any holder of Fresenius USA Common Stock as to how such holder should vote with
respect to the Fresenius USA Merger.
In connection with its opinion, Salomon Brothers made a presentation to
the Fresenius USA Independent Committee on April 25, 1996, with respect to
certain analyses performed by Salomon Brothers in arriving at its opinion and
other considerations. While the Fresenius USA Independent Committee was
familiar with the methodologies and analyses performed by Salomon Brothers and
believed them to be appropriate, it relied on Salomon Brothers' expertise in
such matters with respect to the choice and application of the methodologies
used in determining the fairness of the Reorganization. At the time of this
presentation, the parties contemplated, and Salomon Brothers assumed, that the
exchange ratio in the Fresenius USA Merger would be 1.15 FMC Ordinary Shares to
be issued in exchange for each share of Fresenius USA Common Stock and that
immediately after the consummation of the Reorganization there would be
217,170,000 outstanding FMC Ordinary Shares, on a fully diluted basis,
resulting in the Fresenius USA Public Stockholders owning an aggregate of 4.9%
of FMC Ordinary Shares outstanding, on a fully diluted basis, immediately
following the Reorganization. Subsequently it was determined by the parties,
pursuant to the Reorganization Agreement, that there would be 70,000,000
outstanding FMC Ordinary Shares, on a fully diluted basis, immediately
following the Reorganization. The actual Fresenius USA Public Stockholder
Exchange Ratio reflects the proportional adjustment of the exchange ratio to
reflect this change in the number of outstanding FMC Ordinary Shares.
Immediately following the Reorganization the Fresenius USA Public Stockholders
will own an aggregate of 4.9% of the FMC Ordinary Shares outstanding, on a
fully diluted basis, as assumed at the time of Salomon Brothers' April 25, 1996
presentation. The following is a summary of such Salomon Brothers presentation.
The following quantitative information, to the extent it is based on market
data, is based on market data as it existed at April 25, 1996, and is not
necessarily indicative of current market conditions.
Estimated Fresenius Medical Care Public Market Valuation. In order to
derive an estimated market valuation range for Fresenius Medical Care common
stock Salomon Brothers first established estimates of firm value (which
includes both equity and net indebtedness) for each of Fresenius Worldwide
Dialysis (including Fresenius USA) and NMC, using both a comparable public
market company analysis and a discounted cash flow ("DCF") analysis, and then
added them together and made certain adjustments to establish an estimate of
firm value for Fresenius Medical Care. Based on a review of certain publicly
available information and stock market performance of selected publicly traded
domestic and international medical product companies (including firm value as a
percentage of 1995 revenues and the ratio of firm value to each of
price/earnings ratios, 1995 EBITDA, 1995 EBIT, 1995 earnings and certain
composite published analyst earnings estimates for 1996), Salomon Brothers
established a reference range for the firm value for Fresenius Worldwide
Dialysis (including Fresenius USA) of $2.1 billion to $2.5 billion. Applying a
similar approach to NMC (except using a comparable companies domestic medical
product companies) resulted in a reference range for the firm value of NMC of
$3.95 billion to $4.8 billion.
Using a DCF methodology, Salomon Brothers estimated, for each of
Fresenius Worldwide Dialysis (including Fresenius USA) and NMC, the present
value of its unlevered free cash flows if it were to perform independently in
accordance with its management's projections for 1996 through 2000. Unlevered
free cash flow represents the amount of cash generated and available for
principal, interest and dividend payments after providing for ongoing business
operations. For each of Fresenius Worldwide Dialysis and NMC, Salomon Brothers
aggregated (x) the present value of the projected unlevered free cash flow
through 2000 with (y) the present value of the range of estimated terminal
values (representing an estimate of such company's value beyond 2000). Those
ranges of terminal values were calculated by applying multiples of 8x to 10x to
Fresenius Worldwide Dialysis's estimated EBITDA in 2000 and multiples of 7.5x
to 9.5x to NMC's estimated EBITDA in 2000. Using discount rates 11% to 15% for
Fresenius Worldwide Dialysis and 12% to 14% for NMC, Salomon Brothers computed
a range of firm values of $2.1 billion to $3.0 billion for Fresenius Worldwide
Dialysis and $3.8 billion to $5.0 billion for NMC. Using narrower ranges (8.5x
to 9.5x for Fresenius Worldwide Dialysis and 8.0x to 9.0x for NMC) of terminal
multiples and a 13% discount rate, Salomon
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Brothers computed a narrower range of firm values of $2.4 billion to $2.7
billion for Fresenius Worldwide Dialysis and $4.2 billion to $4.6 billion for
NMC.
Combining the total firm values of Fresenius Worldwide Dialysis and NMC and
adding the present value of all assumed synergies (based on estimates provided
by management of Fresenius USA, Fresenius Worldwide Dialysis, Fresenius AG, NMC
and Grace, as adjusted by Salomon Brothers) and subtracting net indebtedness and
an assumed amount to reflect certain contingent liabilities, resulted in implied
ranges of $15.60 to $23.60 ($16.13 to $24.41 per ADS after adjustment to reflect
the final determination by the parties pursuant to the Reorganization Agreement
as to the aggregate numbers of FMC Ordinary Shares to be outstanding, on a fully
diluted basis, immediately following the Reorganization (the "FMC Actual
Capitalization Adjustment")), per FMC Ordinary Share using public market trading
comparables and $18.10 to $23.60 ($18.72 to $24.41 per ADS after the FMC Actual
Capitalization Adjustment) per FMC Ordinary Share using the DCF analysis. Based
on this, Salomon Brothers estimated a reference range of $18 to $22 ($18.61 to
$22.75 per ADS after the FMC Actual Capitalization Adjustment) per FMC Ordinary
Shares. Salomon Brothers noted however that there could be no assurance as to
the actual price at which FMC Ordinary Shares would trade and that such stock
price would vary over time and would be affected by various factors including
uncertainties and developments with respect to contingent liabilities (see "RISK
FACTORS"), the extent and timing of actual synergies, Fresenius Medical Care's
actual results and other factors affecting Fresenius Medical Care, its business
and economic and market conditions generally. Salomon Brothers noted that at the
Fresenius USA Public Stockholder Exchange Ratio, this reference range for FMC
Ordinary Shares implied a reference range of $20.70 to $25.30 per share of
Fresenius USA Common Stock, compared to a Fresenius USA Common Stock market
price of $20.50 on April 19, 1996, $19.75 on January 5, 1995 (one month prior to
the announcement of the Reorganization) and a weighted average (by trading
volume) market price of $17.15 over the 12 months ended April 23, 1996,
representing a range of premium of 1% to 23.4%, 4.8% to 28.1% and 20.7% to
47.5%, respectively.
Fresenius USA Public Market Valuation. Salomon Brothers reviewed certain
publicly available information and stock market performance data of selected
publicly traded domestic medical product companies with the financial and stock
market performance of Fresenius USA. Based on its review of these selected
companies' price/earnings ratios and firm value multiples of sales, EBITDA and
EBIT, Salomon Brothers established a reference range of estimated equity values
per share for Fresenius USA Common Stock of between $17.30 and $21.40 per
share, as compared with the reference range (described above) of $20.70 to
$25.30 per share of Fresenius USA Common Stock for the FMC Ordinary Shares to be
received in exchange therefor.
Fresenius USA Discounted Cash Flow Analysis. Using a DCF methodology,
Salomon Brothers estimated the present value of unlevered free cash flows of
Fresenius USA if Fresenius USA were to perform in accordance with Fresenius
USA's management's projections for 1996 through 2000. Salomon Brothers
aggregated (x) the present value of the projected unlevered free cash flow
through 2000 with (y) the present value of the range of estimated terminal
values (representing an estimate of Fresenius USA's value beyond 2000). The
range of terminal values was calculated by applying multiples of 10x to 14x to
Fresenius USA's estimated EBITDA in 2000. Using discount rates of 11% to 15%,
Salomon Brothers computed a range of firm values of $538 million to $845 million
and, using a narrower terminal value range of 11x to 13x and a discount of 13%,
Salomon Brothers computed a narrower range of firm values of $632 million to
$729 million. Using these ranges, Salomon Brothers computed a present value per
share of Fresenius USA Common Stock of $16.92 to $27.08 (using the broader
range) and $20.00 to $23.30 (using the narrower range), as compared with the
reference range (described above) of $20.70 to $25.30 per share of Fresenius USA
Common Stock for the FMC Ordinary Shares to be received in exchange therefor.
Precedent Minority Buyout Transactions. Salomon Brothers reviewed selected
transactions since 1984 in which the majority owner of a publicly traded
subsidiary corporation acquired the remaining public interest either for stock
of the parent corporation, cash or for mixed consideration ("minority buyout
transactions"). Salomon Brothers analyzed the premiums of the consideration
paid to the market price of the subsidiary's stock one month prior to
announcement for each of the three types of consideration. Salomon Brothers
noted, among other things, the median and mean premiums in the stock-for-stock
minority buyouts were 22.9% and
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26.0% respectively. Applying a range of market premiums from 22.9% to 26.0% to
the April 19, 1996 market price, the January 5, 1996 market price (one month
prior to the announcement of the Reorganization Agreement) and the weighted
average trading price for the 12 months, 6 months and 3 months ending April 23,
1996, implied stock-for-stock minority buyout prices of $25.19 to $25.83,
$24.27 to $24.89, $21.08 to $21.61, $24.17 to $24.78 and $24.75 to $25.38,
respectively. From this, Salomon Brothers established a minority buyout
reference range for Fresenius USA of $22.00 to $25.00, as compared with the
reference range (described above) of $20.70 to $25.30 per share of Fresenius
USA Common Stock for the FMC Ordinary Shares to be received in exchange
therefor.
The foregoing is a summary of the terms of the presentation by Salomon
Brothers to the Fresenius USA Independent Committee on April 25, 1996,
including all material valuation analyses performed by Salomon Brothers in
connection therewith, and does not purport to be a complete description of such
presentation or of the analyses performed by Salomon Brothers in connection
with the preparation of its opinion. The preparation of a fairness opinion is a
complex process involving subjective judgments and is not necessarily
susceptible to partial analysis or summary description. In arriving at its
opinion Salomon Brothers did not attribute any particular weight to any
analysis or factor considered by it, but rather made qualitative judgments as
to the significance and relevance of each. Salomon Brothers believes that its
analyses must be considered as a whole and that selecting portions of such
analyses and the factors considered therein, without considering all factors
and analyses, could create an incomplete view of the analyses and the processes
underlying Salomon Brothers' opinion. The projections prepared by the
management of each of Fresenius USA, Fresenius Worldwide Dialysis, NMC and
Grace, and the estimates of synergies, underlying Salomon Brothers' analyses
are not necessarily indicative of future results or values, which may be
significantly more or less favorable than such projections and estimates. With
regard to the comparable public market trading company analyses summarized
above, Salomon Brothers selected comparable public companies on the basis of
various factors, including the size of the public market trading company and
similarity of the line of business; however, no public market trading company
utilized as a comparison is identical to Fresenius Worldwide Dialysis,
Fresenius or NMC and no other transaction is identical to the Reorganization.
Salomon Brothers' evaluation of the results of its analyses, and the selection
of ratios, multiples and discount rates to use in its analyses are not
mathematical; rather, they involve complex considerations and judgments
concerning differences in financial and operating characteristics of the
comparable companies and other factors that could affect the public trading
value of the comparable companies to which Fresenius Worldwide Dialysis,
Fresenius USA and NMC are being compared. Estimates of values of companies do
not purport to be appraisals or constitute a prediction of the prices at which
companies or their securities actually may be sold. As noted under "BACKGROUND
AND REASONS -- Background of the Reorganization Reasons for the Recommendation
of the Fresenius USA Board," the fairness opinion of Salomon Brothers was only
one of the many factors considered by the Fresenius USA Independent Committee in
determining to approve the Reorganization. Salomon Brothers has consented to the
inclusion in this Joint Proxy Statement-Prospectus of its opinion delivered to
the Independent Committee, a copy of which is attached as Appendix D hereto, and
to the references to it and its presentation and analyses as set forth herein.
Salomon Brothers' opinion delivered to the Independent Committee was directed
only to the Fresenius USA Public Stockholder Exchange Ratio in the Fresenius USA
Merger and does not constitute a recommendation to any Fresenius USA stockholder
as to how such stockholder should vote at the Fresenius USA Special Meeting.
Salomon Brothers has provided and continues to provide financial
advisory and investment banking services to Grace, for which it has received
and expects to receive customary compensation. In the ordinary course of
business, Salomon Brothers or its affiliates may actively trade the securities
of Fresenius USA, Grace and Fresenius AG for its own account and for the
accounts of its customers and, accordingly, may at any time hold a long or
short position in such securities.
FINANCIAL ADVISORY FEES
Pursuant to a letter agreement dated February 13, 1996, Salomon
Brothers was engaged by the Fresenius USA Independent Committee to advise it
and assist it in connection with the Reorganization. Pursuant to such engagement
letter, Fresenius USA agreed to pay Salomon Brothers the following fees for its
services: (a)
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an initial fee of $100,000 (b) unless the Reorganization shall have been
terminated or withdrawn, or a fee paid pursuant to clause (c) of this paragraph,
a fee of $300,000 per month (less, in the case of the first month, the amount of
the initial fee) payable in arrears for up to five months; plus (c) upon
submission of Salomon Brother's opinion to the Fresenius USA Independent
Committee or, if the Reorganization were terminated or withdrawn or Salomon
Brothers was not otherwise requested to render its opinion, upon Salomon
Brothers having substantially completed the work that was appropriate to prepare
it to render its opinion, an amount equal to $1,500,000 (less all amounts
previously paid pursuant to clauses (a) and (b) of this paragraph). As a result,
Salomon Brothers has become entitled to receive aggregate fees of $1,500,000.
Fresenius USA has also agreed to reimburse Salomon Brothers for its
out-of-pocket expenses, including reasonable fees and disbursements of counsel.
Fresenius USA has agreed to indemnify Salomon Brothers and certain related
persons against certain liabilities, including certain liabilities under the
federal securities laws, relating to or arising out of its engagement.
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