Mandatory
publication pursuant to Section 27 (3)
Clause 1, 14 (3) Clause 1 of the
German
Securities Acquisition and Takeover Act (WpÜG)
Joint
Opinion of the
Management and Supervisory boards
of
Biofrontera
AG
Leverkusen,
Germany,
pursuant
to Section
27 of the German Securities Acquisition and
Takeover Act (WpÜG)
concerning
the modification to the voluntary public
tender offer in the form of a partial
offer
by
Deutsche
Balaton Biotech AG
Heidelberg,
Germany,
to
the shareholders of
Biofrontera
AG
relating
to the purchase of
up to 6,250,000 ordinary registered shares of
Biofrontera AG against
(i) payment of a cash consideration of EUR 1.00 per share as well as the transfer of a warrant
or
(ii) payment of a cash consideration of EUR 6.00 per share
List
of contents
| 1 |
Introduction |
3 |
| |
|
|
| 2 |
Information
about this
Second Opinion |
4 |
| |
2.1 |
Legal
bases of this
Second Opinion |
4 |
| |
2.2 |
Note
about the Management and
Supervisory boards' First Opinion and its relationship
to this Second Opinion |
4 |
| |
2.3 |
Opinion
of the employees
of Biofrontera AG |
6 |
| |
2.4 |
Actual
bases of this
Second Opinion |
6 |
| |
2.5 |
Publication
of this Second
Opinion |
7 |
| |
2.6 |
Publication
of the First
Opinion |
8 |
| |
2.7 |
Biofrontera
shareholders' own responsibility to examine
the Offer |
8 |
| |
|
|
|
| 3 |
Summary
of the
main statements of the First and Second
opinions |
9 |
| |
|
|
| 4 |
Information
about the
modification of the Offer |
11 |
| |
4.1 |
Relevance
of the
Modified Offer Document |
11 |
| |
4.2 |
Modification
of the Offer
by the Modified Offer
Document |
11 |
| |
4.3 |
Consideration |
11 |
| |
|
4.3.1 |
Original
Consideration |
11 |
| |
|
4.3.2 |
Alternative
Consideration |
11 |
| |
4.4 |
Acceptance
period |
11 |
| |
4.5 |
Rights
of withdrawal |
12 |
| |
|
|
|
| 5 |
Type
and level
of consideration offered |
12 |
| |
5.1 |
No
statutory regulations
concerning the type and level of consideration |
12 |
| |
5.2 |
Type
of consideration |
12 |
| |
|
5.2.1 |
Original Consideration |
12 |
| |
|
5.2.2 |
Opinion
of IVC
relating to the financial
appropriateness of the Original Consideration as well
as the Alternative Consideration pursuant to IDW
S 8 / Fairness Opinion |
13 |
| |
|
5.2.3 |
Assessment
of the considerations
by the Management and Supervisory
boards |
15 |
| |
|
|
|
|
| 6 |
Interests
of the
Management and Supervisory boards of Biofrontera
AG |
15 |
| |
6.1 |
No
guarantee or prospect
of benefits |
15 |
| |
6.2 |
Conflicts
of interest / Voting behavior
of the Management
and Supervisory
boards in approving
this opinion / Voting abstentions |
16 |
| |
|
|
|
| 7 |
Intention
of the
members of the Management and Supervisory
boards to accept the offer |
16 |
| |
7.1 |
Management
Board |
16 |
| |
7.2 |
Supervisory
Board |
17 |
| |
|
|
|
| 8 |
Summarizing
opinion of
the Management and Supervisory boards |
17 |
On
25 April
2018, pursuant to Section 10
(1) Clause 1 of the German Securities Acquisition
and Takeover Act (“WpÜG” ), Deutsche Balaton Biotech AG, with company domicile
in Frankfurt am Main, Germany, entered
in the Commercial Register of the District
Court of Frankfurt am Main under Commercial Register Sheet No. 111190 (“Bidder”),
announced its decision to issue a voluntary
public tender offer in the form
of a partial offer for up to 6,250,000 shares
of Biofrontera AG, entered in the Commercial
Register District Court of Cologne under Commercial Register Sheet No. 49717,
(“Target Company” or “Biofrontera
AG”, whereby Biofrontera AG with its participating
interests is also referred to as
the “Biofrontera Group”). The shares of Biofrontera
AG are registered shares and have a notional
interest in the share capital of EUR
1.00 each (individual share certificates).
On
28 May
2018, pursuant to Section 14 (2) and (3) WpÜG,
the Bidder published the offer
document in the meaning of Section 11 WpÜG
(“Offer Document”) for the Bidder’s offer (“Offer”)
to the shareholders of Biofrontera AG
(each individually “Biofrontera shareholder” and jointly “Biofrontera
shareholders”) concerning the acquisition of up to 6,250,000 ordinary registered
shares of Biofrontera AG with the ISIN DE0006046113
(hereinafter referred to individually as the “Biofrontera
share” and together as the “Biofrontera
shares”) against
According
to the Offer
Document, the consideration (“Original Consideration”) consists
of the payment of a consideration
in cash in an amount of EUR 1.00 per
Biofrontera shares as well as the transfer of a warrant
(“Warrant”) according to the terms of the Offer Document.
On
20 July
2018, pursuant to Section 21 (1) Clause
1 Number 2, (2) in combination
with Section 14 (3) Clause 1 of the German
Securities Takeover Act (WpÜG), the Bidder published a modification
to the Offer Document (“Modified Offer Document “) for
the Offer.
According to
the Modified Offer Document, the Offer
now comprises not only the Original
Consideration but also as an alternative consideration the payment of
a cash amount to EUR 6.00 for each
Biofrontera share (“Alternative
Consideration”).
It
is recommended
that the Offer Document and the Modified
Offer Document be read in their entirety.
The Management and Supervisory boards point out that
they are unable to examine and assess whether, if they accept
the Offer, Biofrontera shareholders are acting in accordance
with all legal requirements affecting them personally. In particular,
the Management and Supervisory boards recommend
that all individuals receiving the Offer Document and/or the Modified Offer
Document outside the Federal Republic of Germany,
or that wish to accept the Offer
but are subject to the securities acts of a legal
jurisdiction other than the Federal Republic of Germany,
inform themselves concerning such acts
and comply with them.
| 2 | Information
about
this Second Opinion |
| 2.1 | Legal
bases of
this Second Opinion |
Pursuant
to Section
27 (1) Clause 1 WpÜG, the
Target Company’s Management and Supervisory boards are
required to issue a substantiated opinion relating
to an acquisition offer and to any
modification of the acquisition offer. The opinion of the Management
and Supervisory boards can be issued as
a joint opinion.
The
Management and Supervisory boards of Biofrontera
AG hereby issue their joint opinion (“Opinion”)
pursuant to Section 27 WpÜG relating
to the Bidder’s Offer in the form
of the Modified Offer Document (“Second
Opinion”).
| 2.2 | Note
about
the Management and Supervisory
boards’ First Opinion and its relationship
to this Second Opinion |
Pursuant
to Section
27 (1) Clause 1 WpÜG, the
Management and Supervisory boards have already issued an
opinion relating to the Bidder’s
Offer in the form of the Offer
Document on 11 June 2018 (“First Opinion”).
In
the First
Opinion, the Management and Supervisory boards arrived
by way of conclusion
at the opinion that the Original
Consideration offered by the Bidder
is insufficient.
Furthermore,
the Management
and Supervisory boards as well as the employees
appraised the intentions relating to the Target
Company as expressed by the Bidder
in the Offer Document as a negative.
For this reason, they were of
the opinion that a successful execution of the Offer in no manner
lies in the interests of Biofrontera
AG, the Biofrontera Group, its employees
and Biofrontera shareholders, but instead
could significantly damage them.
Based
on this and
in accordance with the explanations
contained in the First Opinion, the Management
and Supervisory boards consequently recommended
that the shareholders of Biofrontera
AG do not accept the Offer based
on their knowledge and assessments as of the date
of the First Opinion.
Express
reference is made to the Management
and Supervisory boards’ First Opinion.
As
part of this
Second Opinion, pursuant to Section 27 (1)
WpÜG the Management and Supervisory boards will
address the type and level of the Alternative
Consideration offered, whose addition to the Original Consideration comprises
the modification to the Offer.
This
Second Opinion is not intended
to further address the prospective consequences
of a successful offer for Biofrontera
AG, its employees and representatives, the terms
of employment and the locations
of Biofrontera AG, as well as the objectives
the Bidder is pursuing with the
Offer, because in this connection the
Bidder is not communicating any
modifications in relation to
the Offer Document. To this extent, however,
reference is made to the First
Opinion.
In
light of
the Alternative Consideration, the Management
and Supervisory boards will address in this Second
Opinion the intention of the members
of the Management and Supervisory boards to accept
the Offer to the extent that
they are holders of Biofrontera shares.
| 2.3 | Opinion
of
the employees
of Biofrontera AG |
If
the respective
Works Council, or, to the extent that
such a body does not exist – as
is the case with Biofrontera AG – the employees
of the Target Company directly convey an
opinion relating to the offer
to the Management Board, the Management Board
is required to append such an
opinion to its opinion. The employees
of Biofrontera AG have conveyed to the
Management Board their own opinion relating
to the Offer (“First Employees’ Opinion”). The employees
have also issued an opinion relating
to the Modified Offer. (“Second Employees’
Opinion”)
The
employees’ opinions are
attached to this opinion as Annex 2.3.
| 2.4 | Actual
bases of
this Second Opinion |
All
information, expectations, forecasts,
estimates, valuations and forward-looking statements contained in this Second Opinion
as well as statements of intent are based on information
available for the Management and Supervisory boards on the date
of this opinion based on their
tasks and powers. They convey their estimates,
assumptions and intentions existing as of this date,
which can change after the date of this Second
Opinion. Above and beyond obligations pursuant to German law – specifically
the WpÜG – the Management and Supervisory boards
do not assume any obligation
to update this Second Opinion.
The
statements made in this Second
Opinion relating to the Bidder, its affiliated
companies and individuals acting together with the Bidder
are based exclusively on publicly
accessible information, especially the Offer
Document and the Modified Offer Document. The Management and Supervisory boards
point out that they are unable to verify
disclosures made by the Bidder
in the Offer Document and the Modified
Offer Document – apart from those originating
directly within the Biofrontera Group – and
to ensure that they are implemented
or complied with.
The
Management and Supervisory boards have
not undertaken their own independent
review of the offer, or
of the Offer Document or the Modified
Offer Document in relation to compliance
with all – especially foreign – capital-market
and securities legislation.
To
the extent that
this Second Opinion includes forward-looking statements, these do not represent
facts, and are characterized by
the words “become”, “expect”, “believe”, “estimate”,
“intend”, “endeavor”, “assume” and similar
or comparable expressions. Such disclosures express intentions, opinions or current
expectations and assumptions of the Management and Supervisory boards. Forward-looking
statements are based on current plans, estimates and forecasts, which the
Management and Supervisory boards have prepared
according to the best of their knowledge,
but they do not make assertions concerning their future
correctness or occurrence. Forward-looking statements are subject to risks
and uncertainties which are mostly very difficult to predict
and do not lie within the Management
and Supervisory boards’ sphere of influence.
References
to time in this
opinion relate, unless stated otherwise, to local
time in Frankfurt am Main, Germany. To the extent that
formulations such as “currently”, “at present”, “now”, “presently” or “today”
are utilized in this Second Opinion, they relate
to the date of this opinion.
| 2.5 | Publication
of
this Second Opinion |
This
Second Opinion and any supplements
or updates will be published
on the Internet on the Company’s
website at
http://www.biofrontera.com
under
the heading “Investors”
under “Purchase Offer of Deutsche
Balaton Biotech AG”. https://www.biofrontera.com/de/Erwerbsangebot.html
Copies
of the Second
Opinion are available free-of-charge from Biofrontera AG, Hemmelrather Weg 201, 51377 Leverkusen,
Germany (order by fax to +49(0)214-87632-
90 or by email to ir@biofrontera.com).
It is also announced in the German
Federal Gazette (Bundesanzeiger) under www.bundesanzeiger.de that the Second Opinion
is available at the aforementioned address,
and that the publication of the Second
Opinion on the Internet has been realized on the aforementioned
Internet page.
This
Second Opinion will be published in German.
Furthermore, in the USA, because of the stock
market listing there of American
Depositary Shares (“ADS”), each of which
securitizes two ordinary shares of Biofrontera AG, a publication
of the Second Opinion will occur there in accordance
with the relevant provisions and
instructions of the SEC.
| 2.6 | Publication
of
the First Opinion |
The
First Opinion has been published
on the Internet on the website of
Biofrontera AG at
http://www.biofrontera.com
under
the heading “Investors”
under “Purchase Offer of Deutsche
Balaton Biotech AG”. https://www.biofrontera.com/de/Erwerbsangebot.html
Copies
of the First
Opinion are available free-of-charge from Biofrontera AG, Hemmelrather Weg
201, 51377 Leverkusen, Germany (order
by fax to +49(0)214-87632- 90 or by
email to ir@biofrontera.com).
| 2.7 | Biofrontera
shareholders’ own
responsibility to examine the Offer |
The
Management and Supervisory boards of the Target
Company point out that their statements and judgements in this Second
Opinion are in no way binding for Biofrontera
shareholders. Instead, Biofrontera shareholders are themselves responsible for
drawing conclusions deriving from the Offer
or from other accessible sources, and
for acting accordingly. In this context, they themselves
are responsible for deciding whether
to accept the Offer or not.
To
the extent legally permissible,
the Management and Supervisory boards as
well as the Target Company assume
no liability for the instance that an acceptance
or non-acceptance of the Offer
should prove economically disadvantageous for
Biofrontera shareholders or for the Target
Company.
Above
and beyond this, the Management
and Supervisory boards point out that they can
provide no assessment as to the tax
consequences that can arise for the individual Biofrontera shareholder from
the acceptance or non-acceptance of
the Offer. The Management and Supervisory boards recommend
that Biofrontera shareholders obtain tax advice that takes into consideration their
personal tax situation before deciding whether to accept
or not.
If
and to
the extent that Biofrontera shareholders are unable to make an
independent assessment of the Offer, they should consider
obtaining expert advice, such as through
contacting their personal investment adviser and tax adviser.
| 3 | Summary
of
the main statements of the
First and Second opinions |
The
following summary of the main points of the First
and Second opinions serves as an overview. It
does not include all of the information
included in the opinions.
In
their own interests,
the shareholders
are Biofrontera AG should rely not only on this summary but instead examine
completely and in detail the First
Opinion (especially also the summary it includes) and
the Second Opinion as well as
the Offer Document and the Modified Offer Document.
The
main statements of the First
and Second opinions are as follows:
| - |
In this offer procedure, the Bidder is not obligated to offer to Biofrontera shareholders an economically appropriate consideration within the framework of legal regulations, but has instead freely determined the type and level of the consideration it is offering. |
| - |
The Original Consideration offered by the Bidder is financially inappropriate. |
| - |
The Alternative Consideration offered by the Bidder is financially inappropriate. |
| - |
The Bidder does not disclose in the Offer Document which strategic or operative targets it aims to achieve, especially in terms of the considerable personnel changes it is targeting on the Management and Supervisory boards. |
| - |
Given the fact that the Offer Document does not specify any single potential benefit that the Biofrontera Group could derive strategically or operatively from the considerable targeted restructuring of the Management and Supervisory boards, the targeted modifications appear arbitrary. |
| - |
In the assessment of Biofrontera AG, the Bidder and individuals acting together with it have no proven practical experience of any type or other relevant expertise in the Biofrontera Group’s area of activity. For this reason, implementing the Bidder’s ideas for the future composition of the Management and Supervisory boards poses a serious risk to the further development and growth of the Biofrontera Group. |
| - |
Although the Offer offers a premium in relation to the current stock market price, it fails to reflect the share price opportunities given further holding of the Biofrontera share, especially up to the breakeven level. |
| - |
The package premium of just approximately 10% lies below the premium for comparable transactions. In particular, the offer price fails to reflect the additional control advantage which the Bidder acquires through a majority at the Shareholders’ General Meeting and which would be approached given complete subscription for the Offer. |
By
way of conclusion, the Management and Supervisory
boards are of the opinion that the Original Consideration offered by the
Bidder as well as the Alternative
Consideration are financially insufficient.
Furthermore,
the Management and Supervisory
boards as well as the employees continue to appraise the intentions by the
Bidder in the Offer Document relating to the Biofrontera AG as negative
for the reasons presented comprehensively
in the First Opinion. For this reason,
they are of the opinion that a successful
execution of the Offer in no manner
lies in the interests of Biofrontera
AG, the Biofrontera Group, its employees and Biofrontera
shareholders, but instead could significantly damage them.
Based
on this
and in accordance with the explanations contained
in the First and Second opinions, the Management and Supervisory
boards, based on their knowledge and assessments
as of the date of this opinion, consequently
recommend that the shareholders of the Target Company do
not accept the Offer.
| 4 | Information
about
the modification of the
Offer |
| 4.1 | Relevance
of
the Modified Offer Document |
The
Management and Supervisory boards point out that
the description of the Offer
in this Second Opinion makes no claim
to completeness and that solely the provisions of the Offer
Document and the Modified Offer Document are of relevance
for the content and processing of the Offer.
All Biofrontera shareholders are independently responsible for examining the
Offer Document and the Modified Offer Document
and for taking the necessary related actions.
| 4.2 | Modification
of
the
Offer by
the Modified Offer Document |
As
part of this
Second Opinion, pursuant to Section 27 (1)
WpÜG the Management and Supervisory boards will
address the type and level of the Alternative
Consideration offered, whose addition to the Original Consideration comprises
the modification to the Offer.
| 4.3.1 |
Original Consideration |
According
to the terms
of the Offer Document, the Bidder
is continuing to offer all Biofrontera shareholders
in the form of the Original Consideration
to purchase Biofrontera shares they hold for
a cash component per Biofrontera share in an
amount of EUR 1.00 plus a (1) warrant
according to the terms in Annex
1 of the Offer Document.
| 4.3.2 | Alternative
Consideration |
According
to the terms of
the Modified Offer Document, the Bidder alternatively offers
all Biofrontera shareholders in the form of the Alternative
Consideration to purchase Biofrontera shares they hold for
a cash component per Biofrontera share in an
amount of EUR 6.00.
The
acceptance period ends on
6
August 2018, 24:00 hours (local time Frankfurt
am Main).
Biofrontera
shareholders are entitled to withdraw
from agreements concluded through accepting the Offer in the instance of
a modification to the Offer in the meaning of Section
21 (1) WpÜG pursuant to
Section 21 (4) WpÜG as
well as in the case of a competing offer pursuant to Section
22 (3) WpÜG.
| 5 | Type
and
level of consideration
offered |
The
Management and Supervisory boards should address
in their opinion the type and level
of consideration offered.
| 5.1 | No
statutory regulations concerning the type and
level of consideration |
By
contrast with
takeover and
mandatory offers, in the case of a simple
public purchase offer such
as is the case with this offer,
no statutory requirements protecting the Biofrontera
shareholders exist in relation to the type
or level of consideration. In this
instance, the regulations of Section
31 of the German Securities Acquisition and Takeover
Activity (WpÜG) are not applicable.
In
this procedure,
the Bidder is consequently under
no legal obligation to offer to Biofrontera
shareholders an economically appropriate consideration but has instead
freely determined the type and level
of the consideration it is offering.
| 5.2 |
Type of consideration |
| 5.2.1 |
Original Consideration |
The
Offer comprises
as Original
Consideration a consideration consisting of two
components. The first component comprises a cash
payment of EUR 1.00. The second component
consists of a warrant whose terms are presented
in more detail in Annex 1 of
the Offer Document.
| 5.2.2 | Opinion
of
IVC relating to the financial appropriateness
of the Original Consideration as
well as the
Alternative Consideration pursuant to IDW S 8 / Fairness
Opinion |
| (a) | Subject
of
the opinions of IVC
and methodology |
IVC Independent Valuation
& Consulting Aktiengesellschaft Wirtschaftsprüfungsgesellschaft,
Girardetstrasse 2, 45131 Essen
(“IVC”) was engaged to produce a written
opinion concerning the financial
appropriateness of the Original Consideration as well as
subsequently relating to the financial appropriateness of the Alternative
Consideration offered from the perspective
of Biofrontera shareholders (apart from the Bidder
and its affiliated companies.
IVC
receives a
standard market payment (fee plus reimbursement
of expenses) from the Target
Company for its work. The Target Company
and IVC have also entered
into a standard professional agreement relating to the scope
of liability assumed by IVC. The compensation
of IVC does not depend on the success of the Offer.
It should be noted that in the
past, at present, and prospectively also
in the future, IVC has
maintained, maintains, and potentially will maintain relations
with Biofrontera AG and with the Biofrontera Group, for which IVC
has received compensation or will receive
compensation in the future.
The
opinions of IVC
are produced based on the IDW standard
as prepared by the Institute of
Public Auditors in Germany (Institut
der Wirtschaftsprüfer in Deutschland,
hereinafter also referred to as “IDW”) “Principles for the
Preparation of Fairness
Opinions (IDW S 8).”
Given
the standpoints
developed in theory and practice, IDW
S 8 presents the principles according
to which financial auditors establish opinions relating
to the financial appropriateness
of transaction prices as part of corporate
initiatives (so-called fairness opinions). Accordingly,
the task of IVC is to assess,
in compliance with the methods presented
in IDW S 8, whether the considerations
on offer are financially appropriate
in the meaning of IDW S 8. Reviewing
or subjecting to an auditor’s review by IVC
information presented by the Target Company or third
parties does not form a subject of
activity pursuant to IDW S 8.
In
this connection, the Management and Supervisory boards clarify that
| – |
reference
to the fairness opinions of IVC serves solely the purpose of rendering transparent the information basis on which the Management
and Supervisory boards issue their opinions, |
| – |
the fairness opinions
were issued solely on behalf of the Target Company and to support the Management and Supervisory boards in the performance
of their tasks and duties, |
| – |
IVC has neither
reviewed nor subjected to an auditor’s review the information and documents underlying the fairness opinions, |
| – |
the appropriateness
was determined according to IDW S 8 and assessed based mainly on the information and documents provided by the Target Company, |
| – |
no recommendation
to accept or reject the Offer is connected with the fairness opinions, |
| – |
the activity of
IVC does not comprise an assessment of the completeness and correctness of the opinions pursuant to Section 27 of the German
Securities Acquisition and Takeover Activity (WpÜG). |
| (b) | Result
of the opinion of IVC relating to the Original Consideration |
Based
on the activities conducted by IVC in compliance with IDW S 8, IVC has reached the view and communicated to the Target Company
in a letter dated 11 June 2018 (“First Fairness Opinion”) that the Original Consideration offered by the Bidder
is
not financially appropriate in the meaning of IDW S 8.
The
reporting date for this assessment by IVC is 11 June 2018.
The
Opinion Letter prepared by IVC relating to the Original Consideration is attached to this opinion as Annex 5.2.2b.
The
financial appropriateness of the Original Consideration is not investigated any further by IVC in the sections below.
| (c) | Result
of the opinion of IVC relating to the Alternative Consideration |
Based
on the activities conducted by IVC in compliance with IDW S 8, IVC has reached the view and communicated to the Target Company
in a letter dated 27 July 2018 (“Second Fairness Opinion”) that the consideration offered by the Bidder
is
not financially appropriate in the meaning of IDW S 8.
The
reporting date for this assessment by IVC is 27 July 2018.
The
Opinion Letter prepared by IVC relating to the Original Consideration is attached to this opinion as Annex 5.2.2c.
| 5.2.3 | Assessment
of the considerations by the Management and Supervisory boards |
Based
on the points of view presented above, including the fairness opinions, the Management and Supervisory boards assess the Original
Consideration offered by the Bidder as
financially
not appropriate.
Based
on the points of view presented above, including the fairness opinions, the Management and Supervisory boards assess the Alternative
Consideration offered by the Bidder as
financially
not appropriate.
| 6 | Interests
of the Management and Supervisory boards of Biofrontera AG |
| 6.1 | No
guarantee or prospect of benefits |
The
Bidder and persons acting together with it continue to have not granted or held out the prospect of unjustified monetary payments
or other unjustified benefits in kind to the Target Company’s Management and Supervisory board members in connection with
the offer.
| 6.2 | Conflicts
of interest / Voting behavior of the Management and Supervisory boards in approving this
opinion / Voting abstentions |
As
of the date when this opinion was approved, Mr. Plaggemars was acting for persons acting together with the Bidder.
The
members of the Management and Supervisory boards hereby declare that they have otherwise acted solely in the interests of the
Target Company when issuing this opinion. To the extent that, according to the Bidder’s ideas based on the Offer Document
whereby, if the Offer proves successful, personnel modifications are to be made to the Management and Supervisory boards, this
does not substantiate any conflict of interest on the part of the respective board members that would prevent them collaborating
in the writing and approval of this Second Opinion. The relevant members of the Supervisory Board are in no manner economically
dependent on the compensation granted to them. As a matter of principle, the Management Board members would also retain their
entitlement to compensation in the instance of an early recall from office. Furthermore, it cannot be even ensured that the Bidder
and persons acting together with it will be able, given a successful offer, to pass resolutions at the General Meeting of Shareholders
according to their ideas.
The
Management Board approved this opinion unanimously and without abstention.
The
Supervisory Board approved this opinion with 5 (five) yes votes and 1(one) no votes.
| 7 | Intention
of the members of the Management and Supervisory boards to accept the offer |
The
Chairman of the Management Board (CEO), Prof. Dr. Hermann Lübbert, holds a total of 744,678 Biofrontera shares.
Management
Board member, Mr. Thomas Schaffer, holds a total of 56,259 Biofrontera shares and 1,500 ADSs.
Management
Board member, Mr. Christoph Dünwald, holds a total of 120,000 Biofrontera shares.
The
Management Board members do not intend to accept the offer.
Mr.
Jürgen Baumann holds a total of 37,624 Biofrontera shares.
Mr.
Kevin Weber holds a total of 5,000 Biofrontera shares.
Mr.
Hansjörg Plaggemars holds a total of 3,500 Biofrontera shares.
The
Supervisory Board members do not intend to accept the offer.
| 8 | Summarizing
opinion of the Management and Supervisory boards |
By
way of conclusion, the Management and Supervisory boards are of the opinion that the Original Consideration offered by the bidder
as well as the Alternative Consideration are financially insufficient.
Furthermore,
the Management and Supervisory boards as well as the employees continue to appraise the intentions by the Bidder in the Offer
Document relating to the Biofrontera AG as negative for the reasons presented comprehensively in the First Opinion. For this reason,
they are of the opinion that a successful execution of the Offer in no manner lies in the interests of Biofrontera AG, the Biofrontera
Group, its employees and Biofrontera shareholders, but instead could significantly damage them.
Based
on this and in accordance with the explanations contained in the First and Second opinions, the Management and Supervisory boards,
based on their knowledge and assessments as of the date of this opinion, consequently recommend that the shareholders of the Target
Company do not accept the Offer.
Leverkusen,
30 July 2018
Biofrontera
AG
The
Management Board
The
Supervisory Board
Annex
2.3
First
and Second Opinions of the employees of Biofrontera AG
Employees’
Opinion
pursuant
to Section 27 (2) WpÜG
concerning
the voluntary public tender offer in the form of a partial offer
by
Deutsche
Balaton Biotech AG
Heidelberg,
Deutschland,
to
the shareholders of
Biofrontera
AG
to
acquire up to 6,250,000 ordinary registered shares against payment of a cash consideration of EUR 1.00 as well as the transfer
of a warrant pursuant to the terms of the offer document
The
employees of Biofrontera AG and, to the extent specified below, its subsidiaries (together referred to as the “Biofrontera
Group”), hereby issue their own Employees’ Opinion pursuant to Section 27 (2) of the German Securities Acquisition
and Takeover Act (WpÜG) (“Opinion”) concerning the voluntary public purchase offer in the form of a partial
offer (“Offer”) of Deutsche Balaton Biotech AG (“Bidder”) to the shareholders of Biofrontera
AG to acquire up to 6,250,000 ordinary registered shares of Biofrontera AG against payment of a consideration per share in cash
of EUR 1.00 as well as the transfer of a warrant according to the offer document (“Offer Document”):
We
wholly reject the Offer as well as the targeted changes to the management of Biofrontera AG it contains.
In
our eyes, the offer is nothing other than a further attempt by the Bidder and persons acting together with it, namely Deutsche
Balaton AG, VV Beteiligungen AG, DELPHI Unternehmensberatung AG and finally Mr. Wilhelm K. T. Zours, to gain control over the
business activities of the Biofrontera Group.
In
our assessment, however, the Bidder, Deutsche Balaton AG and the other aforementioned parties fail to possess either the business
expertise or the required credibility to manage Biofrontera AG. This impression is confirmed by the fact that, apart from vehement
polemics directed against individual Management Board members and Supervisory Board members of Biofrontera AG, including in so-called
open letters from Mr. Zours in his capacity as Supervisory Board Chairman of Deutsche Balaton AG, substantial and strategic proposals
for the future orientation and further development of the Biofrontera Group have not been made in either the aforementioned offer
or in the other publications of Mr. Zours’ corporate group. Instead, changes, which are unfounded in terms of content, are
to be made to the Management and Supervisory boards of Biofrontera AG.
For
us, this can only lead to the conclusion that the Bidder, Deutsche Balaton AG and the further aforementioned parties essentially
have no corresponding plan and also fail to possess the expertise to develop such a plan within the business area of Biofrontera
AG.
Deutsche
Balaton AG entered into its significant investment in Biofrontera AG in early 2016. Since then, we have been appalled to observe
its behavior and tactical maneuvering, including the fact that Biofrontera AG has been confronted with a large number of legal
cases. We also interpret the events at the 2016 General Meeting of Shareholders as an attempt, already then, to appoint, through
“jiggery-pokery”, a majority of the Supervisory Board of Biofrontera AG with individuals selected by Mr. Zours. To
this are added the constant public accusations and abuse directed at our Management and Supervisory board members, including in
the aforementioned open letters from Mr. Zours on behalf of Deutsche Balaton AG. The open letters from Mr. Zours on behalf of
Deutsche Balaton AG are also especially remarkable for the fact that, at Deutsche Balaton AG, it is clearly not the Management
Board members that issue public statements, but that instead another party is in charge. We are convinced that this approach and
the underlying structures stand in contradiction with the respectful and values- based corporate philosophy we cultivate within
the Biofrontera Group. A collaboration with bodies installed by Mr. Zours, in other words, potentially “front-men and front-women”,
is out of the question for a considerable proportion of the employees and will potentially even lead to a mass exodus, especially
of key business performers, in a manner that could jeopardize the company as a going concern.
The
strategic management of our pharmaceutical company requires multifaceted and far- reaching knowledge at a number of levels, such
as:
| |
– |
Pharmaceutical,
preclinical and clinical development according to GCP in Europe and the USA |
| |
– |
Regulatory affairs
for pharmaceuticals and medical products in Europe and USA |
| |
– |
Production according
to GMP and logistics according to GDP |
| |
– |
Reimbursement management
in different healthcare systems |
| |
– |
Medical
affairs and knowledge/information management in accordance with local pharmaceutical legislation |
| |
– |
Pharmacovigilance |
| |
– |
Data protection |
| |
– |
Patents and intellectual
property |
| |
– |
Marketing and sales |
| |
– |
Quality management |
| |
– |
Financial management
of a company listed in both Germany and the USA |
The
Biofrontera Group knows how to cover this broad operative spectrum with highly motivated staff of many years’ experience,
who work together closely, and on a coordinated and trusting basis with the Management Board. The past years’ successes
are the result of the efficiency, commitment and professionalism of this comparatively small workforce. This generates a team
spirit across the entire company, which also encompasses all Management Board members. The efforts with which Mr. Zours and Deutsche
Balaton AG are endeavoring, in our opinion, to secure control over the company confirms how valuable and unique the Biofrontera
Group is.
The
intended, forced modifications to the management structure against the will of the employees and the Management Board runs directly
counter to the successful basis of the company established over many years.
For
this reason, we appeal to our shareholders to be aware of these aspects and risks, as, according to the Bidder’s proposal,
you are the ones who, also by accepting the offer, are to continue to bear those risks.
In
the selection of the intended new additions and new appointments proposed by the Bidder for the Supervisory and Management boards,
we cannot identify an improved expertise in relation to the strategic controlling and consulting of a globally operating pharmaceutical
company. Out of their own interests, the employees only accept collaboration with Management Board members who serve the company’s
sustainable objectives and are appointed on grounds of their expertise. Through the restructurings to the Management Board as
proposed by the Bidder, we believe the company will be significantly weakened, as the Management Board members’ different
competences are not taken into consideration. The way in which Deutsche Balaton AG repeatedly appoints a particular group of individuals
to its portfolio companies in order to manage them, enhances such concern.
Many
employees of the Biofrontera Group are small shareholders themselves. None of the signatories to this opinion, who at the same
time is a shareholder of Biofrontera AG, will accept the Bidder’s offer. We, who with our daily effort contribute to structure
the progress and success of the Biofrontera Group, back the Company’s active management, and appeal to all shareholders
in our company to do likewise and not accept the offer.
We
confirm this with our signatures below.
Leverkusen,
5 June 2018
Signatures
to the Employees’ Opinion pursuant to Section 27 (2) of the German
Securities
Acquisition and Takeover Act (WpÜG)
| Name/signature |
|
Employee
of (please state the company for which you work) |
| 100%
of the employees* |
|
Biofrontera
AG |
| 100%
of the employees* |
|
Biofrontera
Bioscience GmbH |
| 100
% of the employees in Germany* |
|
Biofrontera
Pharma GmbH |
*
Signature pages are physically present at the company´s office.
Second
Employees’
Opinion
pursuant
to Section 27 (2) WpÜG
concerning
the voluntary public tender offer in the form of a partial offer
by
Deutsche
Balaton Biotech AG
Heidelberg,
Deutschland,
to
the shareholders of
Biofrontera
AG
to
acquire up to 6,250,000 ordinary registered shares against (i) payment of a cash consideration of EUR 1.00 as well as the transfer
of a warrant pursuant to the terms of the offer document, or (ii) payment of a consideration per share in cash of EUR 6.00
On
5 June 2018, the employees of Biofrontera AG and, to the extent specified below, of its subsidiaries, issued their own employees’
opinion pursuant to Section 27 (2) of the German Securities Acquisition and Takeover Act (WpÜG) concerning the public purchase
offer in the form of a partial offer (“Offer”) of Deutsche Balaton Biotech AG (“Bidder”)
to the shareholders of Biofrontera AG for the purchase of up to 6,250,000 ordinary registered shares of Biofrontera AG. The Bidder
has meanwhile modified the Offer.
For
this reason, we issue a renewed opinion relating to the modified Offer:
We
continue to reject the Offer, as well as the changes to the management of Biofrontera AG which it includes, for the reasons presented
in our first opinion, and we demand that Mr. Zours refrains from engaging in further dodgy maneuvers with the objective of gaining
control over Biofrontera.
In
our first opinion, we showed that according to our belief the approach of Mr. Zours and his companies and the underlying structures
conflict with the respectful and value-based corporate philosophy we cultivate within Biofrontera Group. The manner of Mr. Zours
and the representatives of his interests at the last Shareholders’ General Meeting showed that no readiness exists to continue
to work together with the current management and staff. It was shockingly clear with how little specialist expertise and at what
low level the debate was conducted by Mr. Zours and his supporters. In the final analysis, a takeover controlled by the group
surrounding Mr. Zours would lead to a situation where decision-making power would rest entirely with one individual. This is the
structure with which we are familiar from the corporate group of Mr. Zours. Quite clearly, the value and success of a well-functioning
and established workforce is rashly put at risk out of a lack of awareness. This notion is confirmed by the fact that the qualifications
of the new Supervisory Board members proposed by Mr. Zours and the seriousness of their applications at the Shareholders’
General Meeting were entirely insufficient in our view.
To
the extent that some of us participated and also spoke as shareholders at the Shareholders’ General Meeting of Biofrontera
AG, we were appalled at the condescension we encountered from Mr. Zours and the representatives of his interests. Collaborating
with board members installed by Mr. Zours has since become even less conceivable for a considerable portion of the staff.
Many
employees of the Biofrontera Group are small shareholders themselves. None of the signatories to this opinion, who are also shareholders
of Biofrontera AG, will accept the Bidder’s offer, including also not for the new consideration of EUR 6.00 in cash per
share. We, who daily help structure the work and success of the Biofrontera Group, continue to back the Company’s active
management, and appeal to all shareholders in our company to do likewise and not accept the offer.
We
confirm this with our signatures below.
Leverkusen,
24 July 2018
Signatures
to the Employees’ Opinion pursuant to Section 27 (2) of the German
Securities
Acquisition and Takeover Act (WpÜG)
| Name/signature |
|
Employee
of (please state the employing company) |
| 100%
of the employees* |
|
Biofrontera
AG |
| 100%
of the employees* |
|
Biofrontera
Bioscience GmbH |
| 100%
of the employees in Germany* |
|
Biofrontera
Pharma GmbH |
*
Signature pages are physically present at the company’s office.
Annex
5.2.2b
Opinion
Letter of
IVC
Independent Valuation & Consulting Aktiengesellschaft
Wirtschaftsprüfungsgesellschaft
regarding
the Original Consideration
| Private & Confidential |
|
| |
| To the Management and the Supervisory Board of |
| Biofrontera AG |
| Hemmelrather Weg 201 |
| 51377 Leverkusen |
11
June 2018
lars.franken@ivc-wpg.com
+49
(0) 201-31 04 83 85
Fairness
Opinion on the financial appropriateness of the consideration offered by Deutsche Balaton Biotech AG to the shareholders of Biofrontera
AG – Opinion Letter
Dear
Sir or Madam,
the
Management of Biofrontera AG, Leverkusen (hereinafter “Biofrontera” or “Company” or “Target Company”)
has engaged us to submit a statement (fairness opinion) concerning the financial appropriateness of the consideration offered
by Deutsche Balaton Biotech AG, Heidelberg (previously trading under the name of “deltus 30th AG”, hereinafter “DB
Biotech” or “Bidder”).
A. Engagement
and execution of engagement
Biofrontera
is specialized in the development and commercialization of innovative dermatological drugs and therapies, including therapies
for the treatment of certain forms of non-melanoma skin cancer.
On
28 May 2018, DB Biotech published a voluntary public purchase offer for up to 6,250,000 shares of Biofrontera (equivalent to around
14 % of the issued shares of Biofrontera) according to Section 14 para. 2 and 3 German Securities Acquisition and Takeover Act
[WpÜG]. The purpose of the purchase offer is to exceed the blocking minority threshold of 25 % by the Bidder together
with the shareholders/persons, e.g. DELPHI Unternehmensberatungs AG and Deutsche Balaton AG, acting in concert with it. Deutsche
Balaton AG is with a (direct) share of voting rights of app. 9.28 % (see purchase offer Document – 28 May 2018) one of the
major shareholders of Biofrontera.
Pursuant
to section 27 (1) Clause 1 WpÜG, the Target Company’s Management and Supervisory boards are required to issue a substantiated
opinion relating to a purchase offer.
On
16 March 2018, Deutsche Balaton AG had announced its decision to issue a voluntary public purchase offer in the form of a partial
offer for up to 6,250,000 shares of Biofrontera AG pursuant to Section 10 (1) Clause 1 WpÜG. Against this background, Biofrontera
– in respect to an opinion relating to a potential succeeding purchase offer according to Section 27 WpÜG – (preventativly)
engaged IVC Independent Valuation & Consulting Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, Essen (hereinafter
„IVC”), on 4 April 2018 with the preparation of a fairness opinion (comprising an Opinion Letter and a Valuation Memorandum)
for the independent assessment of the proportion of the offer and the required consideration for the purpose of information of
Management and the Supervisory Board of Biofrontera.
Following
the prohibition from the Federal Financial Supervisory Authority of Germany [BaFin] of the voluntary public purchase offer
of Deutsche Balaton AG, DB Biotech, a direct subsidiary of Deutsche Balaton AG, at that time trading under the name of “deltus
30th AG”, announced on 25 April 2018 its decision to issue a voluntary public purchase offer in the form of a partial offer
for up to 6,250,000 shares of Biofrontera AG. The publication of the respective purchase offer took place on 28 May 2018. Against
this background, Biofrontera – in respect to an opinion relating to the purchase offer according to Section 27 WpÜG
– in continuation resp. extension of the before stated engagement, engaged us for an independent assessment of the proportion
of the offer and the required consideration for the purpose of information of Management and the Supervisory Board of Biofrontera.
IVC’s
opinion is based on the IDW Standards prepared by the Institute of Public Auditors in Germany, Incorporated Association [Institut
der Wirtschaftsprüfer in Deutschland e.V. - IDW]: “IDW Standard: Principles for the Preparation of Fairness
Opinions (IDW S 8)” [“Grundsätze für die Erstellung von Fairness Opinions (IDW S 8)”].
The
opinion date has been determined to the signing day of this Fairness Opinion (11 June 2018).
For
the purposes of this IDW Standard, a given transaction price is financially fair when it lies within a range of values determined
using an income approach and reference transaction prices (the benchmarking function). If a recent valuation in accordance with
IDW S 1 is available for the transaction target, this should be used as a benchmark. The public auditor should provide reasons
for the weighting given to the different methods (cf. IDW S 8, para. 6).
The
methods and analyses applied in assessing the transaction price and supplementary information usually yield a range as a benchmark.
The public auditor must assess the reliability of the range determined using the various methods in order to eliminate any outliers,
thereby narrowing the range further. For the purposes of this IDW Standard, the transaction price is fair if it, in the case of
a sale, it lies within or above the range, or, in the case of an acquisition, within or below the range (cf. IDW S 8, para. 30).
Against
this background and following our engagement by Biofrontera we as an independent and impartial expert assessed at the opinion
date 11 June 2018, wether the consideration offered comprising
| ● |
a
payment of a consideration in cash of EUR 1.00 per Biofrontera share and the |
| |
|
| ● |
transfer
of a warrant according to the terms and conditions of the purchase offer Document dated 28 May 2018 |
per
Biofrontera share is financially appropriate within the meaning of “IDW Standard: Principles for the Preparation of Fairness
Opinions (IDW S 8)”.
Our
IVC opinion is rendered for the sole purpose of informing the management board and the supervisory board of Biofrontera. It is
no substitute for an independent assessment of the consideration offered by DB Biotech. It does not contain any recommendation
to accept or reject the Offer. Moreover, it does not include any assessment as to whether the terms and conditions of the transaction
meet the legal requirements. The presented valuations are only suitable for the determination of assessment benchmarks for the
transaction price to be assessed. They do not have the purpose of an independent valuation and / or assesment of the target company,
e.g. to determine Biofronteras fair value or present value.
Our
work in accordance with IDW S 8 does not include an audit or review of information presented to us by Biofrontera or third parties.
The
conduct of the mandate and our responsibility is governed by the General Engagement Terms for German Public Auditors and Public
Audit Firms in the version dated 1 January 2017 [Allgemeine Auftragsbedingungen für Wirtschaftsprüfer und Wirtschaftsprüfungsgesellschaften
vom 1. Januar 2017].
B. Informationbasis
We
conducted our work from 4 April 2018 until 11 June 2018 in the offices of Biofrontera in Leverkusen as well as in our office in
Essen.
In
particular we have received the following documents from Biofrontera:
| ● |
annual
reports of Biofrontera AG for the accounting year 2014, 2015, 2016 and 2017, |
| |
|
| ● |
audit
reports of Warth & Klein Grant Thornton AG Wirtschaftsprüfungsgesellschaft, Düsseldorf, for the consolidated
financial statements of Biofrontera AG for the financial years 2014, 2015, 2016, 2017 and |
| |
|
| ● |
Multi
year planning of Biofrontera AG (dated: 6 April 2018). |
In
addition, we accessed publicly available information and capital markets data from the financial information service providers
Thomson Reuters EIKON and S&P Capital IQ for our work.
Information
was given to us in particular by
| ● |
Mr.
Thomas Schaffer, Chief Financial Officer of Biofrontera AG, Leverkusen, |
| |
|
| ● |
Mr.
Hans-Dieter Stock, Vice President of Controlling of Biofrontera AG, Leverkusen, |
| |
|
| ● |
Ms.
Andrea Piotraschke, Director of Accounting of Biofrontera AG, Leverkusen. |
The
Management Board of Biofrontera confirmed to us in a letter of representation that all information and records which are important
for our assessment of the appropriateness of the consideration offered were completely and correctly issued and provided.
C. Benchmark
for the assessment of financial appropriateness
Within
the given purchase offer, the consideration comprises a cash component to the extent of EUR 1.00. The predominant portion of the
total value of the consideration offered relates to the value of the warrant.
Each
warrant entitles the holder (shareholders accepting the purchase offer) until 30 November 2020 to demand against a payment of
an amount of EUR 1.00 (strike price) the transfer of one Biofrontera share. The voting rights from the Biofrontera shares, for
which the purchase offer is accepted, transfer to the Bidder until the warrant is exercised. If Biofrontera AG realizes a dividend
payment, such dividends are in accordance to the warrant conditions forwarded to the warrant holders (Section 8 of the warrant
conditions). If Biofrontera AG implements any capital measures, warrant holders are by “passing through” in principle
economically been treated (Section 8 of the warrant conditions) as if, as if they were (original) owners of the Biofrontera shares.
The
economic position of the Biofrontera shareholder by accepting the purchase offer is effected as followed:
| ● | Economic
advantage related to the acceptence of the purchase offer: |
| ○ | The
effect of this combination of cash component and grant of a warrant for the purchase
offer accepting shareholder is a hedge against downside-risks relating to a drop in the
Biofrontera share price below the mark of EUR 1,00. |
| ● | Main
economic disadvantages related to the acceptence of the purchase offer: |
| ○ | During
the term of the warrant, a Bifrontera shareholder accepting the purchase offer Biofrontera
AG, abstains from the voting right, which is transferred to the bidder for the term of
the warrant. |
| ○ | The
factual realization of the exercise of the warrant depends on the future economic condition
of the Bidder (issuer- / return-risk of the Bidder). |
| ○ | The
acceptence of the purchase offer as well as the exercise of the warrant can be associated
with transaction costs for the accepting shareholders. Furthermore the acceptence of
the purchase offer and/or the exercise of the warrant could affect personal taxes of
a Biofrontera shareholder. |
As
a result, Biofrontera shareholders accepting the purchase offer stil bear (nearly) the full chances and risks of the Biofrontera
share. For the assessment of the economic net effect of the purchase offer, the absolute value of a Biofrontera share therefore
is a minor issue.
Within
the purchse offer, the Bidder has announced his intention for several arrangements and targets for the forthcoming General Meeting
of Shareholders of Biofrontera AG; a formal obligation for corresponding actions of the DB Biotech does not exist.
From
our point of view, the intended measures announced in the purchase offer of the DB Biotech ultimately do not effect the decisions
of the Biofrontera shareholders:
Even
if a shareholder is considering the implementation of the announced actions as economical beneficial, compared to an unspecific
exercise or transfer of his voting rights, the Biofrontera shareholder can realize this benefit also in the situation, if he still
is invested in Biofrontera stocks resp. not accepting the purchase offer:
| ● |
the
Biofrontera shareholders can exercise their voting rights in a corresponding manner themselves at the (annual) General Meetings
of Shareholders of Biofrontera AG directly or |
| |
|
| ● |
the
shareholders can transfer - with an authorization and a corresponding binding instruction - their voting rights to a third
party of their choice or announce a representative of their choice. |
From
our point of view, there are no prohibitive transaction costs contradicting such a transfer / appointment.
Furthermore
there are no constraints (like disqualification periods) regarding the exercise of the voting right for the Biofrontera shareholder
in the alternative actions considered before.
In
case a (former) shareholder – succeeding to the acceptance of the purchase offer - wants to retrieve the voting right by
exercising the warrant, he is subject to certain exception periods according to Section 3 para. 2 a of the warrant conditions:
From the date of the announcement in the German Federal Gazette [Bundesanzeiger]
| ● |
of
the convening of a General Meeting of the Shareholders of Biofrontera AG or |
| |
|
| ● |
the
submission of a demand for the convening of a General Meeting of Shareholders by Deutsche Balaton AG to Biofrontera AG |
until
the end of the day of the respective General Meeting of Shareholders or the withdrawal of the demand for the convening of such
a meeting, the warrant can not be exercised. In consequence, the warrant could not be exercised by the purchase offer accepting
shareholder (and the voting right could not be retrieved), when the voting rights derived from the Biofrontera-shares can concretely
be exercised at the General Meetings of Biofrontera shareholders.
According
to the option conditions, the Biofrontera shareholder accepting the purchase offer also receives the right to co-sell under certain
conditions in a bundle sale of Biofrontera shares by Deutsche Balaton AG on the appropriate terms. In principle the receipt of
this (one-sided) right constitutes another advantage. Nevertheless, we have no indications that this also leads to a concrete
advantage:
| ● |
We
have no information that there are concrete sales intentions of Deutsche Balaton AG. Rather the current overall picture that
is recognizable to us, indicates that Deutsche Balaton AG, together with the companies acting in concert to it, intends to
expand its influence on Biofrontera - in particular through the purchase offer. |
| |
|
| ● |
The
conditions for participation (co-sale right) are designed in such a way that their fulfillment or non-fulfillment is largely
controllable by Deutsche Balaton AG; insofar the fulfillment of the condition does not exclusively depend on external “third
factors”. Even if Deutsche Balaton AG receives an “attractive” offer to sell its Biofrontera shares, a Biofrontera
shareholder contemplating the purchase offer (relevant in this case) can therefore not assume that he will participate in
it through a right of co-sale. |
Against
this background, the right of co-sale contained in the option conditions was not to be taken into account as an additional benefit
in the assessment of the financial appropriateness of the consideration offered.
To
determine the benchmark for the assessment of the economic advantages and disadvantages or rather the resulting economic net effect
from the acceptance of the offer, we have applied the following methods:
| ● | Analysis
of hedging against price declines (option valuation method) |
The
economic benefit for Biofrontera shareholders accepting the purchase offer of hedging against a price decline below EUR 1.00 was
analyzed with Black-Scholes models using alternative assumptions, in particular the value of a Biofrontera share and the expected
volatility.
| ● | Analysis
of the valuation or rather pricing of voting rights on the capital market |
As
an initial point for the analysis of the valuation or rather pricing of voting rights on the capital market, observable price
differences of preference shares and ordinary shares on the capital market are considered. We adjusted these by the values of
any additional dividends and analyzed the impact of the free float of ordinary shares.
| ● | Analysis
of the issuer- / return-risk of the Bidder |
To
estimate the issuer- / return-risk attributed to DB Biotech as the Bidder, we have analyzed in particular market assessments of
probability of default and failure rates.1 In view of the limited data situation, we focused primarily on market
average sizes. We also assessed the proposed mechanism for exercising the warrant or rather the return of the stock.
| 1 | DB
Biotech has entered into a fiduciary relationship with Prisma Equity AG (a company affiliated
with Deutsche Balaton AG) regarding the deposit of Biofrontera shares to service the
warrant holders claims; the structure of this fiduciary relationship is only partially
comprehensible for us, due to the fact that only a few details are given in the offer
documents. Anyway the warrant holders are nevertheless principally exposed to issuer
risk with regard to DB Biotech; this is already apparent from the corresponding risk
presentation in Annex 4 (Section „D. Risiken”, D.2, second point, P-10)
of the offer document. |
We
have waived from explicitly taking into account any further disadvantages in relation to transaction costs and / or taxes resulting
through the acceptance of the offer, because the non-advantageousness of the purchase offer already results from the above discussed
advantages and disadvantages.
Although
the assessment of the absolute value of a Biofrontera share is in terms of this transaction of inferior importance, we prepared
an DCF-evaluation of Biofrontera – particularly with respect to the warrant – and compared the results with capital
markets data:
| ● | Capital
value oriented approach: DCF-approach |
In
order to derive the value of Biofrontera, we used a discounted-cash-flow approach.
When
the discounted cash flow method is used, the business value is determined by discounting cash flows. The relevant cash flows used
were those cash flows to which all debt and equity owners are entitled (Free Cash Flow to the firm (“FCFF”) method)
and these are discounted with the weighted cost of capital (WACC method). If available, special values are taken into account
and net financial debt is deducted.
Our
work was based on the Company’s planning. We have reviewed these for obvious mistakes. The net earnings relevant to the
valuation were discounted using a capitalization rate for an equivalent term and risk.
| ● | Market
approaches: Multiples |
Based
on available financials from comparable listed companies (Peer Group), we have determined trading multiples and transaction multiples.
Based on this, we checked the enterprise value of Biofrontera for plausibility.
| ● | Further
plausibility analysis: stock exchange price of Biofrontera and analysts’ estimates |
We
analyzed the stock exchange price in a period before the publication of the purchase offer. We further analyzed stock price estimates
by analysts.
D. Summary
Based
on our conducted activities in compliance with IDW S 8, we state that the consideration offered by the Bidder comprising
| ● | a
cash payment of EUR 1.00 and |
| ● | the
grant of a warrant according to the terms and conditions of the purchase offer Document
dated 28 May 2018 |
per
Biofrontera share is not financially appropriate in the meaning of IDW Standard: “Principles for the Preparation of Fairness
Opinions (IDW S 8)”.
We
are issuing this Opinion Letter on the basis of the documents and information provided to us and taking into account the professional
standards as established especially in Section 2 and Section 43 of the Act on the Code of Professional Practice for German Public
Auditors [Wirtschaftsprüferordnung]
Essen,
11 June 2018
IVC
Independent Valuation & Consulting
Aktiengesellschaft
Wirtschaftsprüfungsgesellschaft
 |
 |
| Dr.
Jörn Schulte |
Dr.
Lars Franken |
| (Wirtschaftsprüfer) |
(Wirtschaftsprüfer) |
Annex
5.2.2c
Opinion
Letter of
IVC
Independent Valuation & Consulting Aktiengesellschaft
Wirtschaftsprüfungsgesellschaft
regarding
the Alternative Consideration
| Private & Confidential |
|
| |
| To the Management and the Supervisory Board of |
| Biofrontera AG |
| Hemmelrather Weg 201 |
| 51377 Leverkusen |
27 July
2018
lars.franken@ivc-wpg.com
+49
(0) 201-31 04 83 85
Fairness
Opinion on the financial appropriateness of the consideration offered according to the updated purchase offer by Deutsche Balaton
Biotech AG to the shareholders of Biofrontera AG – Opinion Letter
Dear
Sir or Madam,
the
Management of Biofrontera AG, Leverkusen (hereinafter “Biofrontera” or “Company” or “Target Company”)
has engaged us to submit a statement (fairness opinion) concerning the financial appropriateness of the consideration offered
according to the updated purchase offer by Deutsche Balaton Biotech AG, Heidelberg (previously trading under the name of
“deltus 30th AG”, hereinafter “DB Biotech” or “Bidder”).
A. Engagement
and execution of engagement
Biofrontera
is specialized in the development and commercialization of innovative dermatological drugs and therapies, including therapies
for the treatment of certain forms of non-melanoma skin cancer.
On
28 May 2018, DB Biotech published a voluntary public purchase offer for up to 6,250,000 shares of Biofrontera (equivalent to around
14 % of the issued shares of Biofrontera) according to Section 14 para. 2 and 3 German Securities Acquisition and Takeover Act
[WpÜG]. The purpose of the purchase offer is to exceed the blocking minority threshold of 25 % by the Bidder together
with the shareholders/persons, e.g. DELPHI Unternehmensberatungs AG and Deutsche Balaton AG, acting in concert with it. Deutsche
Balaton AG is with a (direct) share of voting rights of app. 9.28 % (see purchase offer Document – 28 May 2018) one of the
major shareholders of Biofrontera.
On
20 July the Bidder published according to Section 21 para. 1 Clause 1 No 2, para. 2 and Section 14 para. 3 Clause 1 WpÜG
an update (hereinafter “updated purchase offer”) to its purchase offer as of 28 May 2018).
Pursuant
to section 27 (1) Clause 1 WpÜG, the Target Company’s Management and Supervisory boards are required to issue a substantiated
opinion relating to the updated purchase offer.
Biofrontera
had – in respect to an opinion relating to the purchase offer as of 28 May 2018 according to Section 27 WpÜG –
engaged us for an independent assessment of the proportion of the offer and the required consideration for the purpose of information
of Management and the Supervisory Board of Biofrontera. We submitted our respective statement with the signing date 11 June 2018.
Against
the background of the updated purchase offer as of 20 July 2018, Biofrontera – in respect to an opinion relating to the
purchase offer according to Section 27 WpÜG – in continuation resp. extension of the before stated engagement, engaged
us for an independent assessment of the proportion of the offer and the required consideration for the purpose of information
of Management and the Supervisory Board of Biofrontera regarding the updated purchase offer.
This
assessment should be limited to the alternative required consideration “payment of EUR 6.00 in cash”, which has been
newly added to the purchase offer as an alternative required consideration. The original required consideration of the purchase
offer as of 28 May 2018 “payment of a consideration in cash of EUR 1.00 per Biofrontera share and the transfer of a warrant
according to the terms and conditions of the purchase offer Document dated 28 May 2018” has not been touched by the updated
purchase offer as of 20 July 2018 and remains unchanged. For the assessment of this original required consideration we refer to
our statement as of 11 June 2018.
This
IVC’s opinion is based on the IDW Standards prepared by the Institute of Public Auditors in Germany, Incorporated Association
[Institut der Wirtschaftsprüfer in Deutschland e.V. - IDW]: “IDW Standard: Principles for the Preparation
of Fairness Opinions (IDW S 8)” [“Grundsätze für die Erstellung von Fairness Opinions (IDW S 8)”].
The
opinion date has been determined to the signing day of this Fairness Opinion (27 July 2018).
For
the purposes of this IDW Standard, a given transaction price is financially fair when it lies within a range of values determined
using an income approach and reference transaction prices (the benchmarking function). If a recent valuation in accordance with
IDW S 1 is available for the transaction target, this should be used as a benchmark. The public auditor should provide reasons
for the weighting given to the different methods (cf. IDW S 8, para. 6).
The
methods and analyses applied in assessing the transaction price and supplementary information usually yield a range as a benchmark.
The public auditor must assess the reliability of the range determined using the various methods in order to eliminate any outliers,
thereby narrowing the range further. For the purposes of this IDW Standard, the transaction price is fair if it, in the case of
a sale, it lies within or above the range, or, in the case of an acquisition, within or below the range (cf. IDW S 8, para. 30).
Against
this background and following our engagement by Biofrontera we as an independent and impartial expert assessed at the opinion
date 27 July 2018, whether the newly offered alternative consideration according to the updated purchase offer containing a
payment
of a consideration in cash of EUR 6.00
per
Biofrontera share is financially appropriate within the meaning of “IDW Standard: Principles for the Preparation of Fairness
Opinions (IDW S 8)”.
Our
IVC opinion is rendered for the sole purpose of informing the management board and the supervisory board of Biofrontera. It is
no substitute for an independent assessment of the consideration offered by DB Biotech. It does not contain any recommendation
to accept or reject the Offer. Moreover, it does not include any assessment as to whether the terms and conditions of the transaction
meet the legal requirements. The presented valuations are only suitable for the determination of assessment benchmarks for the
transaction price to be assessed. They do not have the purpose of an independent valuation and / or assesment of the target company,
e.g. to determine Biofronteras fair value or present value.
Our
work in accordance with IDW S 8 does not include an audit or review of information presented to us by Biofrontera or third parties.
The
conduct of the mandate and our responsibility is governed by the General Engagement Terms for German Public Auditors and Public
Audit Firms in the version dated 1 January 2017 [Allgemeine Auftragsbedingungen für Wirtschaftsprüfer und Wirtschaftsprüfungsgesellschaften
vom 1. Januar 2017].
B. Basis
of information
We
conducted our additional work from 20 July 2018 until 27 July 2018 in our office in Essen.
In
particular we received the following documents from Biofrontera:
| ● | annual
reports of Biofrontera AG for the accounting year 2014, 2015, 2016 and 2017, |
| ● | audit
reports of Warth & Klein Grant Thornton AG Wirtschaftsprüfungsgesellschaft,
Düsseldorf, for the consolidated financial statements of Biofrontera AG for the
financial years 2014, 2015, 2016, 2017 and |
| ● | Multi
year planning of Biofrontera AG (dated: 6 April 2018, the company confirmed us, that
the Multi year planning still reflects the actual expectations of the management). |
In
addition, we accessed publicly available information and capital markets data from the financial information service providers
Thomson Reuters EIKON and S&P Capital IQ for our work.
Information
was given to us in particular by
| ● | Mr.
Thomas Schaffer, Chief Financial Officer of Biofrontera AG, Leverkusen, |
| ● | Mr.
Hans-Dieter Stock, Vice President of Controlling of Biofrontera AG, Leverkusen, |
| ● | Ms.
Andrea Piotraschke, Director of Accounting of Biofrontera AG, Leverkusen. |
The
Management Board of Biofrontera confirmed to us in a letter of representation that all information and records which are important
for our assessment of the appropriateness of the consideration offered were completely and correctly issued and provided.
C. Benchmark
for the assessment of financial appropriateness
To
determine a range of values to be used as a benchmark we applied the following methods; by this we derived the equity value of
Biofrontera using an income approach and conducted a plausibility check using several capital market data.
| ● | Capital
value oriented approach: DCF-approach |
In
order to derive the value of Biofrontera, we used a discounted-cash-flow approach.
When
the discounted cash flow method is used, the business value is determined by discounting cash flows. The relevant cash flows used
were those cash flows to which all debt and equity owners are entitled (Free Cash Flow to the firm (“FCFF”) method)
and these are discounted with the weighted cost of capital (WACC method). If available, special values are taken into account
and net financial debt is deducted.
Our
work was based on the Company’s planning. We have reviewed these for obvious mistakes. The net earnings relevant to the
valuation were discounted using a capitalization rate for an equivalent term and risk.
| ● | Market
approaches: Multiples |
Based
on available financials from comparable listed companies (Peer Group), we have determined trading multiples and transaction multiples.
Based on this, we checked the enterprise value of Biofrontera for plausibility.
| ● | Further
plausibility analysis: stock exchange price of Biofrontera, analysts’ estimates
and control premia |
We
analyzed the stock exchange price in a period before the publication of the purchase offer and before the updated purchase offer.
We further analyzed stock price estimates by analysts and control premia for comparable transactions.
The
equity value resp. value per share of Biofrontera derived by us based on companies planning exceeds the actual level of the share
price. As far as the share price of Biofrontera in the long run moves into the direction / level of the value per share, a Biofrontera
shareholder accepting the updated purchase offer (EUR 6.00) would not participate resp. would participate only to a very small
extent to this potential share price raisings.
The
newly offered alternative required consideration according to the updated purchase offer represents an additional amount of around
10 % in relation to the share price level as at the time of the submission of the updated purchase offer. As far as the additional
amount is regarded as a control premia, this premia does not cover the before mentioned potential advantage from holding the share
against the background of the derived equity value. Additionally, the additional amount of around 10 % lies below additional amounts
of comparable transactions; this applies even more, as DB Biotech and persons acting in concert with it can be supposed to reach
a majority in the general annual meeting of Biofrontera in case the offer is accepted completely.
D. Summary
Based
on our conducted activities in compliance with IDW S 8, we state that the newly offered, alternative consideration offered by
the Bidder according to the updated purchase offer containing a
payment
of a consideration in cash of EUR 6.00
per
Biofrontera share is not financially appropriate in the meaning of IDW Standard: “Principles for the Preparation of Fairness
Opinions (IDW S 8)”.
We
are issuing this Opinion Letter on the basis of the documents and information provided to us and taking into account the professional
standards as established especially in Section 2 and Section 43 of the Act on the Code of Professional Practice for German Public
Auditors [Wirtschaftsprüferordnung]
Essen,
27 July 2018
IVC
Independent Valuation & Consulting
Aktiengesellschaft
Wirtschaftsprüfungsgesellschaft
| |
|
| Dr.
Jörn Schulte |
Dr.
Lars Franken |
| (Wirtschaftsprüfer) |
(Wirtschaftsprüfer) |
