Mail Stop 6010
December 23, 2005
Ms. Jessica M. Hoover
Vice President, Head of Corporate Business Development
Chiron Corporation
4560 Horton Street
Emeryville, California 94608
Re: Chiron Corporation
Proxy Statement on Schedule 14A, Schedule 13E-3
and all included and incorporated documents
File No. 0-12798, Filed November 25, 2005
Dear Ms. Hoover:
We have reviewed your filings and have the following comments.
Where
indicated, we think you should revise your documents in response
to
these comments. If you disagree, we will consider your
explanation
as to why our comment is inapplicable or a revision is
unnecessary.
Please be as detailed as necessary in your explanation. In some
of
our comments, we may ask you to provide us with supplemental
information so we may better understand your disclosure. After
reviewing this information, we may or may not raise additional
comments.
Please understand that the purpose of our review process is to
assist
you in your compliance with the applicable disclosure requirements
and to enhance the overall disclosure in your filing. We look
forward to working with you in these respects. We welcome any
questions you may have about our comments or on any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
Schedule 14A
General
1. On a supplemental basis, please confirm that your proxy
statement
will be provided to your shareholders at least 20 business days
prior
to the meeting date.
2. We note that the transaction will trigger a change-of-
ownership-
clause in Chiron`s agreement with Schering AG regarding the right
to
market the Chiron-discovered multiple sclerosis drug Betaseron.
In
the appropriate sections, please revise your disclosure to discuss
the relevance of this on the transaction and the considerations of
each of Chiron and Novartis with respect to this matter.
Questions and Answers About the Merger, pages vii to xii
3. It appears that your Questions and Answers section addresses
many
of the same topics referenced in your Summary Term Sheet. Please
revise to eliminate unnecessary repetition. In particular, we
suggest you limit the Questions and Answers section to procedural
matters relating to the meeting and that you include disclosure
related to all other matters in your Summary Term Sheet. Upon
relocating these topics to your Summary Term Sheet, we suggest
that
you continue to disclose the narrative disclosure contained in
your
Questions and Answers, rather than referencing where a particular
matter may be located in the body of the proxy statement.
4. Under the question "How Many Votes Are Required to Approve the
Merger Proposal?", please disclose the number of outstanding
shares
that must vote in favor of the merger and the merger agreement,
both
with and without the shares held by Novartis. Please also
disclose
any votes that you have locked up pursuant to voting or other
agreements. Please also disclose this information on page 2 under
"Quorum; Vote Required."
5. We refer you to the question "What are Consequences of the
Merger
to Chiron`s Directors and Executive Officers?." Please expand
your
disclosure and describe in reasonable detail the benefits each of
Chiron`s directors and executive officers will receive if this
transaction is completed. This discussion should include, but not
be
limited to, a discussion of amount payable as a result of the
vesting
and cancellation of currently unvested options and restricted
stock
units and restricted share rights. Also, this discussion should
disclose the amount payable to your executive officers and
directors
due to the change of control. Further, to the extent that your
current officers and/or directors will continue to serve the
company
after the transaction, disclose whether that the compensation to
be
received by your officers and directors will increase as a result
of
this transaction and whether there will be any material
alterations
to the existing executive agreements that will be favorable to
your
executive officers as a result of this transaction. To the extent
that there are material differences between the interests of your
officers and directors and the unaffiliated security holders in
this
transaction, prominently provide a summary of the interests and
potential conflicts of interests. See Item 5 of Schedule 14A and
Schedule 13E-3, Item 11.
6. Please expand the question "What If I Fail to Instruct My
Broker?"
to clarify whether broker non-votes will be counted towards a
quorum.
7. Under the question "Is the Exercise of Chiron`s Subscription
Right
Dependent on the Completion of the Merger?" please name the
regulatory approvals referenced.
The Special Meeting, page 2
8. We note that the fee payable to Innisfree will range from
$25,000
to $50,000. Please explain the contingent nature of this fee. In
this regard, under what circumstances will Chiron pay Innisfree a
fee
of $50,000? See Item 1009 of Regulation M-A.
Special Factors, pages 4-33
Background of the Merger, pages 4-7
9. Identify each party`s financial advisor and disclose when they
were first engaged and each meeting in which they participated.
10. Please provide more robust disclose of the discussions
regarding
Chiron`s "long-range strategic planning." For example, did Chiron
consider discussions with other candidates regarding a similar
transaction? To that effect, we note your statement on page 20
that
the board "has not considered alternatives to the merger." Please
explain what you mean by this statement. See Item 1013(b) of
Regulation M-A.
11. Please revise the description of the May 20, 2005 meeting to
describe the long-range plan update and the preliminary
discussions
concerning Chiron`s valuation with Credit Suisse First Boston and
Morgan Stanley.
12. In your description of the December 2, 2004 meeting between
Lewis
Coleman and Raymond Breu you state that you discussed Chiron`s
strategic outlook and Novartis` options. Please revise to
describe
the strategic outlook and the options Novartis was considering.
13. Additionally, at the January 11, 2005 meeting Mr. Coleman
informed Dr. Breu that it was not an opportune time for Chiron to
facilitate due diligence. Please explain why in more detail.
14. Please disclose what alternative means Chiron considered to
accomplish the transaction or to otherwise increase shareholder
value. Briefly describe the alternatives and state the reasons
for
rejection. In each case, you should also disclose the advantages
and
disadvantages of the alternative. See Item 1013(b) of Regulation
M-
A.
15. Your descriptions of many of the board meetings appear vague.
You should describe in greater detail the nature and substance of
the
deliberations conducted by both companies` boards at their
meetings.
What conclusions did the board reach at these meetings? The
disclosure should provide stockholders with an understanding of
how,
when and why the terms of the proposed transaction evolved during
the
course of these discussions. You should also briefly disclose any
actions that the meeting participants agreed to undertake, either
through resolutions or through informal agreement. Additionally,
the
parties attending each meeting should be identified. For meeting
attended by legal advisors and/or financial advisors, revise to
include the name of the firm acting as legal and/or financial
advisor.
16. Please disclose the relevance to Novartis of the FDA
inspection
of Chiron`s Liverpool facility.
17. Please describe the rationale behind Novartis` $40 offer.
Also,
disclose the basis for the non-Novartis directors` determination
that
the $40.00 was inadequate. For example, what criterion was
examined
to make this determination?
18. Please revise the discussion of the August 31, 2005 meeting to
identify the SEC filing that you refer to.
19. Please revise the discussion of the September 1 and September
5,
2005 meetings to describe the updated presentations from Chiron`s
financial advisors.
20. In the discussion of the October 28, 2005 meeting you refer to
open issues relating to Chiron`s request for modifications to
increase the certainty of consummating any transaction that might
be
announced. Please revise to describe the modifications that
Chiron
requested and whether or not such modifications were made.
21. Revise the discussion of the October 30 telephonic meeting to
identify the open contract issues that you reference.
22. Please provide a more robust discussion of the purpose for the
transaction as required by Item 1013(a) of Regulation M-A. To
that
effect, we note that in its initial offer letter, Novartis stated
that the acquisition would better position Chiron to "deal with
the
legal, regulatory and business issues that it is facing" and would
enable Novartis to "build a strategic platform in vaccines." At a
minimum, please expand on these statements in the initial Novartis
letter. In addition, please also provide a brief description of
the
purpose in the summary term sheet. We may have further comments.
23. Please disclose the Novartis financial advisor and provide the
appropriate disclosure required by Item 1015 of Regulation M-A
related to this financial advisor.
24. Each presentation, discussion or report held with or presented
by
an outside party that is materially related to the Rule 13e-3
transaction, whether oral or written, is a separate report that
requires a reasonably detailed description meeting the
requirements
of Item 1015 of Regulation M-A. This requirement applies to both
preliminary and final reports. To the extent you have not already
done so, please revise to summarize all the presentations made by
CSFB, Morgan Stanley and the Novartis financial advisor and also
file
all relevant written materials, spreadsheets, talking papers,
board
books, drafts, summaries or outlines, as exhibits pursuant to Item
9
of Schedule 13E-3 and Item 1016(c) of Regulation M-A. In
particular,
it does not appear that reports received by Novartis from its
financial advisor have been filed.
Fairness of the Merger; Recommendation of the Non-Novartis
Directors
of Chiron`s Board of Directors, pages 7-9
25. Please note that each filing person`s opinion as to the
fairness
of the transaction to the unaffiliated security holders is
required.
The factors upon which this belief is based must be discussed in
reasonable detail. In this regard, all of the factors listed in
Instruction 2 to Item 1014 of Regulation M-A are generally
relevant
to the fairness determination in a Rule 13e-3 transaction and
should
be discussed by each filing person. We note that you fail to
address
many of these factors. If the board did not consider one or more
of
the factors, state that and explain why the factor(s) were not
deemed
material or relevant. Also, to the extent applicable, include a
discussion as to why each filing person determined that the
transaction is fair despite the fact that it does not appear that
the
consideration was derived from or compared to the factors set
forth
in Instruction 2 to Item 1014. See Question and Answer No. 20 of
Exchange Act Release No. 34-17719. Also, we remind you that your
disclosure should not be comprised of "conclusory statements."
See
Instruction 3 to Item 1014 of Regulation M-A. Alternatively, the
filing persons may expressly adopt the analysis of another filing
person in order to fulfill its disclosure obligation. Similar
revisions should be made to your disclosure regarding the position
of
the Novartis Entities regarding fairness of the merger.
26. Please disclose whether the board considered the possibility
of
derivative actions as a result of the transaction and the
possibility
that those transactions might adversely affect the merger and the
steps taken to minimize the possibility of such actions.
27. The Non-Novartis directors` disclosure regarding fairness
should
address the procedural safeguard factors identified in Items 1014
(d), (e) and (f) of Regulation M-A. Please revise to address
these
factors or disclose the basis for the Non-Novartis directors`
belief
that the transaction is fair to unaffiliated shareholders in their
absence. The discussion of the fairness determination of the
Novartis Entities should contain similar disclosure.
28. You state that the non-Novartis directors had the "ability to
retain legal counsel and financial advisors selected by them."
Please disclose whether or not the directors did so and, if not,
the
reasons why. We may have further comments.
29. We note your reference to "extensive arm`s-length negotiations
with Novartis." Please advise of the basis for your belief that
these negotiations were conducted at arm`s-length due to the
related
party nature of the transaction.
30. Please revise your disclosure to describe in greater detail
the
developments surrounding FLUVIRIN considered by the Chiron board
as
adverse factors.
31. Please explain the Chiron board`s reasons for believing that
the
ranges of implied per share valuations generated by Credit Suisse
First Boston and Morgan Stanley were more reflective of the fair
value of Chiron than the book value of the common stock or the
liquidation value. Quantify the factors and valuations to the
extent
possible.
Position of the Novartis Entities Regarding Fairness of Merger,
pages
9-10
32. Please expand the disclosure in this section to discuss in
reasonable detail the aspects of Chiron`s historical financial
performance and Novartis` internal financial analysis that
provided
the basis for the position of the Novartis entities.
33. Additionally, it appears from the discussions of the
Background
of the transaction that Novartis had a financial advisor. Did
this
party provide a fairness opinion? If it did, the fairness opinion
should be presented and the analyses performed should be described
in
reasonable detail. Additionally, if Novartis adopted its fairness
advisor`s fairness analysis, this information should be disclosed.
See comment 25 above.
Opinions of Chiron`s Financial Advisors, pages 10-18
34. We note that the summary of the Credit Suisse First Boston
opinion is qualified in its entirety by the full text of the
opinion.
A qualification of this type appears to be inconsistent with the
requirement that all material information be provided in the
information statement. Please revise.
35. Please disclose any instructions given to the financial
advisors
in connection with the fairness opinions and any limitations
imposed
on the scope of their investigations or tell us supplementally
that
no such instructions were given and that no such limitations were
imposed.
36. Please disclose whether there have been any material events
that
would affect the opinion since the date of the opinion.
37. The discussion of the financial analyses performed appears to
imply that Credit Suisse First Boston and Morgan Stanley performed
a
joint analysis. If this is correct that this was a collaborative
effort, please revise to clarify. If each party performed their
own
analysis, then please revise to describe each party`s analyses
separately. For example:
* You have identified a list of comparable companies on page 16.
Did
Credit Suisse First Boston and Morgan Stanley perform one analysis
or
did each party perform a comparable company analysis? If each
party
performed a separate analysis, did both use the same list of
companies or did CSFB use some of the companies on this list and
Morgan Stanley use other companies on the list?
38. We note the list of criteria used to select comparable
companies.
Were the companies identified on page 16 the only companies that
met
the criteria? If there were other companies that met the criteria
but were excluded from the analysis, please disclose this
information
and explain why they were excluded from the analysis.
39. We note that Chiron`s financial advisor`s concluded that P/E
multiples of 20.0x to 26.0x for 2006 and 18.0x to 24.0x for 2007
were
appropriate ranges in valuing Chiron. How did the financial
advisors
reach that conclusion? Please disclose the criteria and
assumptions
used in selecting the P/E multiples for Chiron. Also, provide a
discussion of the comparable company analysis. Was a P/E multiple
calculated for each of the companies identified on page 16 or did
they calculate the P/E multiple for a selection of these
companies?
Did the financial advisors use the P/E multiples of the comparable
companies to determine the appropriate range of P/E multiples for
Chiron or did they use the mean and/or median? Please revise to
explain and to provide the P/E multiples that were used to
determine
the appropriate range of multiples for Chiron.
40. Explain the terms "Company Forecast" and "Analyst Forecast."
It
is unclear if the valuation calculated using Chiron`s financial
advisors` forecasts would be considered the "Company Forecast" or
the
"Analyst Forecast."
41. Please explain further what you mean by the statement
"Adjusted`
earnings per share amounts excluded special items relating to
certain
acquisitions" on page 16.
42. Please disclose the criteria and assumptions used to determine
the growth rates mentioned on page 17.
43. In the discussion labeled "Discounted Cash Flow Analysis -
Chiron
Consolidated" you state that the advisors used a subset of the
companies reviewed in the selected company analysis. Please
revise
to identify each of the companies in this subset and explain how
they
were chosen. Explain how these companies were used to determine
an
implied valuation range for Chiron common stock. Also, revise to
disclose how the advisors determined the discount rate range and
the
growth rate range for the discounted cash flow analyses.
44. Please disclose key comparable precedent transactions
considered
in the analysis and disclose how these transactions were selected.
Please also disclose the dates and premiums paid in each
transaction
and how information gleaned from these transactions assisted you
in
determining that the terms of this transaction is fair to the
unaffiliated shareholders.
Interests of Chiron`s Directors and Executive Officers in the
Merger,
pages 21-23
45. Please briefly describe what you mean by a "qualifying
termination."
46. Please also disclose in this section the number of shares the
directors and officers owned as of the record date, what
percentage
of the outstanding common stock this represented on that date, and
how they plan to vote.
Relationship with Novartis AG, page 23
47. We note your statement on page 26 that Chiron did not meet the
2004 measurement standards. Please describe the measurement
standards more specifically. For example, are the measurement
standards driven off net income, revenue or some other measure?
Quantify the 2004 shortfall. Are you on track to meet the
measurement standard this year?
Certain Federal Income Tax Considerations, page 30
48. You are required to disclose a description of all of the
"material" federal tax consequences of the transaction, rather
than
"certain" federal tax consequences. Revise the heading and the
text
of this section to clarify that this section addresses the
"material"
tax consequences of this transaction. See Item 1004(a)(xii) of
Regulation M-A. Please make similar changes throughout your proxy
statement.
49. Revise to discuss the federal tax consequences of the Rule
13e-3
transaction on the subject company and the other Rule 13e-3 filing
persons. See Item 1013(d) of Regulation M-A.
50. Your disclosure should present the material tax consequences
of
the transaction to security holders. In this regard, we note that
you disclose that "a stockholder that receives cash as a result of
the merger will generally recognize gain or loss . . . ." Please
remove qualifying words such as "generally" or revise the
disclosure
to clarify why you are not certain of the material federal tax
consequences.
51. Please revise the tax disclaimer in the last sentence of this
section and similar disclosure throughout your Offer. While you
may
recommend that investors consult their own tax advisors with
respect
to their particular tax consequences that may vary on an
individual
basis, you may not disclose that they "should" consult their tax
advisors.
Litigation, pages 30-31
52. Please disclose the amount of the claims for damages and
rescission, respectively.
53. Please be advised that Instruction to Item 1011(a)(5) requires
that a copy of any document relating to a major development (such
as
pleadings, an answer, complaint, temporary restraining order,
injunction, opinion, judgment or order) in a material pending
legal
proceeding must be furnished promptly to the Commission staff on a
supplemental basis.
Regulatory Approvals, pages 32-33
54. Please disclose the amount of the filing fee that will be paid
in
connection with the HSR filing and who will pay it. Please
disclose
that the HSR Act places the responsibility for filing fees on the
acquirer. If the company is paying any portion, please explain
why
the company agreed to accept these expenses.
Closing Conditions, pages 43-44
55. Please revise your disclosure to indicate which conditions may
be
waived.
Financial Projections, page 50
56. Please confirm that you have disclosed all projections and
underlying assumptions of the company that were supplied to
Chiron`s
financial advisors and used to formulate their opinions. Further,
what consideration was given to disclosure of the 2004 long-term
strategic plan and, specifically, the projections contained
therein?
57. We note that you disclose that "[n]one of Chiron, the non-Non-
Novartis directors and the board generally, any of the Novartis
entities, Credit Suisse First Boston, Morgan Stanley or Chiron`s
independent auditors assume any responsibility for the
reasonableness, completeness, accuracy or reliability of this
prospective financial information." The purpose and effect of
this
statement is unclear. Accordingly delete this referenence.
Forward-Looking Statements, page 54
58. The offer states that the filings persons "do not undertake an
obligation to update the forward- looking information contained in
the proxy statement." This statement is inconsistent with your
amendment obligations under Rule 13e-3 and the proxy rules. Under
those provisions, you have an affirmative obligation to revise the
disclosure whenever it changes materially. Please delete.
Where you Can Find More Information, page 55
59. Please revise your disclosure to properly reflect the new
address
of the SEC`s Public Reference Room. The new address is 100 F
Street,
N.E., Washington, DC, 20549.
60. Please note that Schedule 13E-3 does not specifically permit
"forward incorporation" of any documents filed under Sections
13(a),
13(c), 14 or 15(d) of the Exchange Act. If you make any such
filings, you may be required to amend the Schedule 13E-3 to
specifically incorporate them by reference. Please confirm.
Proxy Card
61. We note you have provided the opportunity for investor to vote
for or against the use of discretionary authority for other
business
that may properly come before the meeting. Please note, that this
discretionary authority cannot be used to adjourn the meeting in
order to solicit additional votes. If the meeting may be
adjourned
for this purpose, you should include a separate opportunity to
vote
for adjournment in order to solicit additional votes.
As appropriate, please amend your filings in response to
these
comments. You may wish to provide us with marked copies of the
amendments to expedite our review. Please furnish a cover letter
with your amendments that keys your responses to our comments and
provides any requested supplemental information. Detailed cover
letters greatly facilitate our review. Please understand that we
may
have additional comments after reviewing your amendments and
responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require.
Since the company and its management are in possession of all
facts
relating to a company`s disclosure, they are responsible for the
accuracy and adequacy of the disclosures they have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the each filing person acknowledging
that:
* the filing person is responsible for the adequacy and accuracy
of
the disclosure in the filings;
* staff comments or changes to disclosure in response to staff
comments in the filings reviewed by the staff do not foreclose the
Commission from taking any action with respect to the filing; and
* the filing person may not assert staff comments as a defense in
any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
You may contact Amy Bruckner at (202) 551-3657 or Mary Mast
at
(202) 551-3613 if you have questions regarding comments on the
financial statements and related matters. Please contact Sonia
Barros at (202) 551-3655, or Suzanne Hayes at (202) 551-3675 with
any
other questions.
Sincerely,
Jeffrey Riedler
Assistant Director
cc: Alison S. Ressler, Esq.
Patrick S. Brown, Esq.
Sullivan & Cromwell LLP
1888 Century Park East, Suite 2100
Los Angeles, California 90067-1725
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Ms. Jessica M. Hoover
December 23, 2005
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