=============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO RULE 13d-1(a)
AND AMENDMENTS THERETO FILED PURSUANT TO RULE 13d-2(a)
Chiron Corporation
------------------------------------------------
(Name of Issuer)
Common Stock, $0.01 par value
------------------------------------------------
(Title of Class of Securities)
170040109
------------------------------------------------
(CUSIP Number)
Allison Bennington
ValueAct Capital
435 Pacific Avenue, Fourth Floor
San Francisco, CA 94133
(415) 362-3700
------------------------------------------------
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
With a Copy to:
Christopher G. Karras, Esq.
Dechert LLP
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, Pennsylvania 19103-2793
Ph. (215) 994-4000
December 19, 2005
------------------------------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition that is the subject of this Schedule 13D, and is
filing this schedule because of Rule 240.13d-1(b)(e), 240.13d-1(f) or
240.13d-1(g) check the following box [ ].
NOTE: Schedules filed in paper format shall include a signed original and
five copies of the schedule, including all exhibits. See Rule 240.13d-7(b)
for other parties to whom copies are to be sent
1The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which
would alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 ("Act") or otherwise subject to the liabilities of that section
of the Act but shall be subject to all other provisions of the Act (however,
see the Notes).
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SCHEDULE 13D
-------------------------- -------------------------
CUSIP NO. 170040109 Page 2 of 17
-----------------------------------------------------------------------------
1. NAME OF REPORTING PERSON/S.S. OR I.R.S. INDENTIFICATION NO. OF ABOVE
PERSON (entities only)
ValueAct Capital Master Fund, L.P.
-----------------------------------------------------------------------------
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X]
(b) [ ]
-----------------------------------------------------------------------------
3. SEC USE ONLY
-----------------------------------------------------------------------------
4. SOURCE OF FUNDS*
WC*
-----------------------------------------------------------------------------
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) [ ]
-----------------------------------------------------------------------------
6. CITIZENSHIP OR PLACE OF ORGANIZATION
British Virgin Islands
-----------------------------------------------------------------------------
7. SOLE VOTING POWER
0
NUMBER OF ----------------------------------------------------------
SHARES 8. SHARED VOTING POWER
BENEFICIALLY 9,761,527**
OWNED BY EACH ----------------------------------------------------------
PERSON WITH 9. SOLE DISPOSITIVE POWER
0
----------------------------------------------------------
10. SHARED DISPOSITIVE POWER
9,761,527**
-----------------------------------------------------------------------------
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
9,761,527**
-----------------------------------------------------------------------------
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES [ ]
-----------------------------------------------------------------------------
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
5.2%
-----------------------------------------------------------------------------
14. TYPE OF REPORTING PERSON
PN
-----------------------------------------------------------------------------
*See Item 3
**See Item 2 and 5
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE
ATTESTATION.
SCHEDULE 13D
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CUSIP NO. 170040109 Page 3 of 17
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1. NAME OF REPORTING PERSON/S.S. OR I.R.S. INDENTIFICATION NO. OF ABOVE
PERSON (entities only)
ValueAct Capital Partners Co-Investors, L.P.
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2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X]
(b) [ ]
-----------------------------------------------------------------------------
3. SEC USE ONLY
-----------------------------------------------------------------------------
4. SOURCE OF FUNDS*
WC*
-----------------------------------------------------------------------------
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) [ ]
-----------------------------------------------------------------------------
6. CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
-----------------------------------------------------------------------------
7. SOLE VOTING POWER
0
NUMBER OF ----------------------------------------------------------
SHARES 8. SHARED VOTING POWER
BENEFICIALLY 38,473**
OWNED BY EACH ----------------------------------------------------------
PERSON WITH 9. SOLE DISPOSITIVE POWER
0
----------------------------------------------------------
10. SHARED DISPOSITIVE POWER
38,473**
-----------------------------------------------------------------------------
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
38,473**
-----------------------------------------------------------------------------
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES [ ]
-----------------------------------------------------------------------------
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
Less than 1%
-----------------------------------------------------------------------------
14. TYPE OF REPORTING PERSON
PN
-----------------------------------------------------------------------------
*See Item 3
**See Item 2 and 5
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE
ATTESTATION.
SCHEDULE 13D
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CUSIP NO. 170040109 Page 4 of 17
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1. NAME OF REPORTING PERSON/S.S. OR I.R.S. INDENTIFICATION NO. OF ABOVE
PERSON (entities only)
VA Partners, L.L.C.
-----------------------------------------------------------------------------
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X]
(b) [ ]
-----------------------------------------------------------------------------
3. SEC USE ONLY
-----------------------------------------------------------------------------
4. SOURCE OF FUNDS*
WC*
-----------------------------------------------------------------------------
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) [ ]
-----------------------------------------------------------------------------
6. CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
-----------------------------------------------------------------------------
7. SOLE VOTING POWER
0
NUMBER OF ----------------------------------------------------------
SHARES 8. SHARED VOTING POWER
BENEFICIALLY 9,800,000**
OWNED BY EACH ----------------------------------------------------------
PERSON WITH 9. SOLE DISPOSITIVE POWER
0
----------------------------------------------------------
10. SHARED DISPOSITIVE POWER
9,800,000**
-----------------------------------------------------------------------------
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
9,800,000**
-----------------------------------------------------------------------------
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES [ ]
-----------------------------------------------------------------------------
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
5.2%
-----------------------------------------------------------------------------
14. TYPE OF REPORTING PERSON
00 (LLC)
-----------------------------------------------------------------------------
*See Item 3
**See Item 2 and 5
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE
ATTESTATION.
SCHEDULE 13D
-------------------------- -------------------------
CUSIP NO. 170040109 Page 5 of 17
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1. NAME OF REPORTING PERSON/S.S. OR I.R.S. INDENTIFICATION NO. OF ABOVE
PERSON (entities only)
Jeffrey W. Ubben
---------------------------------------------------------------------------
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X]
(b) [ ]
-----------------------------------------------------------------------------
3. SEC USE ONLY
---------------------------------------------------------------------------
4. SOURCE OF FUNDS*
00*
-----------------------------------------------------------------------------
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) [ ]
-----------------------------------------------------------------------------
6. CITIZENSHIP OR PLACE OF ORGANIZATION
United States
-----------------------------------------------------------------------------
7. SOLE VOTING POWER
0
NUMBER OF ----------------------------------------------------------
SHARES 8. SHARED VOTING POWER
BENEFICIALLY 9,800,000**
OWNED BY EACH ----------------------------------------------------------
PERSON WITH 9. SOLE DISPOSITIVE POWER
0
----------------------------------------------------------
10. SHARED DISPOSITIVE POWER
9,800,000**
-----------------------------------------------------------------------------
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
9,800,000**
-----------------------------------------------------------------------------
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES [ ]
-----------------------------------------------------------------------------
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
5.2%
-----------------------------------------------------------------------------
14. TYPE OF REPORTING PERSON
IN
-----------------------------------------------------------------------------
*See Item 3
**See Item 2 and 5
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE
ATTESTATION.
SCHEDULE 13D
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CUSIP NO. 170040109 Page 6 of 17
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1. NAME OF REPORTING PERSON/S.S. OR I.R.S. INDENTIFICATION NO. OF ABOVE
PERSON (entities only)
George F. Hamel, Jr.
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2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X]
(b) [ ]
-----------------------------------------------------------------------------
3. SEC USE ONLY
-----------------------------------------------------------------------------
4. SOURCE OF FUNDS*
00*
-----------------------------------------------------------------------------
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) [ ]
-----------------------------------------------------------------------------
6. CITIZENSHIP OR PLACE OF ORGANIZATION
United States
-----------------------------------------------------------------------------
7. SOLE VOTING POWER
0
NUMBER OF ----------------------------------------------------------
SHARES 8. SHARED VOTING POWER
BENEFICIALLY 9,800,000**
OWNED BY EACH ----------------------------------------------------------
PERSON WITH 9. SOLE DISPOSITIVE POWER
0
----------------------------------------------------------
10. SHARED DISPOSITIVE POWER
9,800,000**
-----------------------------------------------------------------------------
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
9,800,000**
-----------------------------------------------------------------------------
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES [ ]
-----------------------------------------------------------------------------
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
5.2%
-----------------------------------------------------------------------------
14. TYPE OF REPORTING PERSON
IN
-----------------------------------------------------------------------------
*See Item 3
**See Item 2 and 5
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE
ATTESTATION.
SCHEDULE 13D
-------------------------- -------------------------
CUSIP NO. 170040109 Page 7 of 17
-----------------------------------------------------------------------------
1. NAME OF REPORTING PERSON/S.S. OR I.R.S. INDENTIFICATION NO. OF ABOVE
PERSON (entities only)
Peter H. Kamin
-----------------------------------------------------------------------------
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X]
(b) [ ]
---------------------------------------------------------------------------
3. SEC USE ONLY
-----------------------------------------------------------------------------
4. SOURCE OF FUNDS*
00*
-----------------------------------------------------------------------------
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) [ ]
-----------------------------------------------------------------------------
6. CITIZENSHIP OR PLACE OF ORGANIZATION
United States
-----------------------------------------------------------------------------
7. SOLE VOTING POWER
0
NUMBER OF ----------------------------------------------------------
SHARES 8. SHARED VOTING POWER
BENEFICIALLY 9,800,000**
OWNED BY EACH ----------------------------------------------------------
PERSON WITH 9. SOLE DISPOSITIVE POWER
0
----------------------------------------------------------
10. SHARED DISPOSITIVE POWER
9,800,000**
-----------------------------------------------------------------------------
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
9,800,000**
-----------------------------------------------------------------------------
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES [ ]
-----------------------------------------------------------------------------
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
5.2%
-----------------------------------------------------------------------------
14. TYPE OF REPORTING PERSON
IN
-----------------------------------------------------------------------------
*See Item 3
**See Item 2 and 5
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE
ATTESTATION.
ITEM 1. SECURITY AND ISSUER.
This Schedule 13D relates to the Common Stock $0.01 par value,
(the "Common Stock"), of Chiron Corporation, a Delaware corporation (the
"Issuer"). The address of the principal executive offices of the Issuer
is 4560 Horton Street, Emeryville, CA 94608.
ITEM 2. IDENTITY AND BACKGROUND.
This statement is filed jointly by (a) ValueAct Capital Master Fund,
L.P. ("ValueAct Master Fund"), (b) ValueAct Capital Partners Co-
Investors, L.P. ("ValueAct Co-Investors"), (c) VA Partners, L.L.C. ("VA
Partners"), (d) Jeffrey W. Ubben, (e) George F. Hamel, Jr. and (f) Peter
H. Kamin (collectively, the "Reporting Persons").
ValueAct Co-Investors is a Delaware limited partnerships. ValueAct
Master Fund is a limited partnership organized under the laws of the
British Virgin Islands. Each has a principal business address of 435
Pacific Avenue, Fourth Floor, San Francisco, CA 94133.
VA Partners is a Delaware limited liability company, the principal
business of which is to serve as the General Partner to ValueAct Master
Fund and ValueAct Co-Investors. VA Partners has a principal business
address of 435 Pacific Avenue, Fourth Floor, San Francisco, CA 94133.
(a), (b) and (c). Messrs. Ubben, Hamel and Kamin are each managing
members, principal owners and controlling persons of VA Partners, and
directors and such activities constitute their principal occupations.
Such individuals are sometimes collectively referred to herein as the
"Managing Members" or individually as a "Managing Member". Each
Managing Member is a United States citizen and has a principal business
address of 435 Pacific Avenue, Fourth Floor, San Francisco, CA 94133.
(d) and (e). None of the entities or persons identified in this
Item 2 has during the past five years been convicted of any criminal
proceeding (excluding traffic violations or similar misdemeanors), nor
been a party to a civil proceeding of a judicial or administrative body
of competent judgment, decree or final order enjoining future violations
of, or prohibiting or mandating activities subject to, federal or state
securities laws or finding any violation with respect to such laws.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
The source of funds used for the purchase of the Issuer's
securities was the working capital of ValueAct Master Fund. The aggregate
funds used by these Reporting Persons to make the purchases were
$210,434,884.07.
ITEM 4. PURPOSE OF TRANSACTION.
The Reporting Persons have acquired the Issuer's Common Stock
for investment purposes, and such purchases have been made in the
Reporting Persons' ordinary course of business.
Page 8 of 17
In pursuing such investment purposes, the Reporting Persons may
further purchase, hold, vote, trade, dispose or otherwise deal in the
Common Stock at times, and in such manner, as they deem advisable to
benefit from changes in market prices of such Common Stock, changes in
the Issuer's operations, business strategy or prospects, or from sale or
merger of the Issuer. To evaluate such alternatives, the Reporting
Persons will routinely monitor the Issuer's operations, prospects,
business development, management, competitive and strategic matters,
capital structure, and prevailing market conditions, as well as
alternative investment opportunities, liquidity requirements of the
Reporting Persons and other investment considerations. Consistent with
its investment research methods and evaluation criteria, the
Reporting Persons may discuss such matters with management or directors
of the Issuer, other shareholders, industry analysts, existing or
potential strategic partners or competitors, investment and financing
professionals, sources of credit and other investors. Such factors and
discussions may materially affect, and result in, the Reporting Persons'
modifying their ownership of Common Stock, exchanging information with
the Issuer pursuant to appropriate confidentiality or similar agreements,
proposing changes in the Issuer's operations, governance or
capitalization, or in proposing one or more of the other actions
described in subsections (a) through (j) of Item 4 of Schedule 13D.
The Reporting Persons reserve the right to formulate other plans
and/or make other proposals, and take such actions with respect to their
investment in the Issuer, including any or all of the actions set forth
in paragraphs (a) through (j) of Item 4 of Schedule 13D, or acquire
additional Common Stock or dispose of all the Common Stock beneficially
owned by them, in public market or privately negotiated transactions.
The Reporting Persons may at any time reconsider and change their plans
or proposals relating to the foregoing.
On November 25, 2005, the Issuer filed a Schedule 14A with the
Commission regarding the acquisition by Novartis of all of the
outstanding shares of the Issuer not already owned by Novartis at a price
of $45 per share (the "Transaction"). On December 19, 2005 the Reporting
Person sent a letter (the "Letter") to Howard H. Pien, Chairman of the
Board of Directors of the Issuer, stating that, in its opinion, the
merger consideration of $45 per share being offered by Novartis to all of
the other shareholders of the Issuer in the Transaction is not fair to
those shareholders from a financial point of view. The letter further
stated that the Reporting Person intends to vote in opposition to the
Transaction and is seriously considering whether to demand appraisal
rights pursuant to Section 262 of the Delaware General Corporation Law. A
copy of the Letter is attached as Exhibit B to this report and is
incorporated herein by reference.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
(a) and (b). Set forth below is the beneficial ownership of
shares of Common Stock of the Issuer for each person named in Item 2.
Page 9 of 17
Shares reported as beneficially owned by ValueAct Master Fund and
ValueAct Co-Investors are also reported as beneficially owned by VA
Partners, as investment manager or General Partner of each such
investment partnership, and by the Managing Members as controlling
persons of the General Partner. VA Partners and the Managing Members
also, directly or indirectly, may own interests in one or both of such
partnerships from time to time. Unless otherwise indicated below, by
reason of such relationships each of the partnerships is reported as
having shared power to vote or to direct the vote, and shared power to
dispose or direct the disposition of, such shares of Common Stock with VA
Partners and the Managing Members.
As of the date hereof, ValueAct Master Fund is the beneficial
owner of 9,761,527 shares of Common Stock, representing approximately
5.2% of the Issuers outstanding Common Stock. ValueAct Co-Investors is
the beneficial owner of 38,473 shares of Common Stock representing less
than 1% of the Issuers outstanding Common Stock.
VA Partners and each of the Managing Members may be deemed the
beneficial owner of an aggregate of 9,800,000 shares of Issuer Common
Stock, representing approximately 5.2% of the Issuers outstanding Common
Stock. All percentages set forth in this Schedule 13D are based upon the
Issuer's reported 188,575,753 outstanding shares of Common Stock reported
in the Issuer's Form 10-Q for the quarterly period ended September 30,
2005.
(c)During the sixty (60) days preceding the date of this report, the
Reporting Persons purchased the following shares of Common Stock in
the open market.
Reporting Person Trade Date Shares Price/Share
---------- --------- ------- -----------
ValueAct Master Fund 12/14/2005 50,000 $44.60
12/14/2005 80,000 $44.64
12/14/2005 900,000 $44.64
12/14/2005 300,000 $44.59
12/14/2005 100,000 $44.65
12/15/2005 800,000 $44.68
12/15/2005 45,000 $44.66
12/15/2005 25,000 $44.65
12/15/2005 32,500 $44.66
12/16/2005 1,525,000 $44.83
12/16/2005 25,000 $44.70
12/16/2005 169,564 $44.85
12/19/2005 100,000 $44.87
12/19/2005 250,000 $44.89
12/19/2005 296,936 $44.86
(d) and (e) Not applicable.
Page 10 of 17
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH
RESPECT TO SECURITIES OF THE ISSUER
Other than as described elsewhere in this Report, the Reporting Persons have
no understandings, arrangements, relationships or contracts relating to the
Common Stock which are required to be described hereunder.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
A) Joint Filing Agreement
B) Letter from Reporting Persons dated December 19, 2005 to the Issuer
Page 11 of 17
SIGNATURES
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete
and correct.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below on this Schedule 13D hereby constitutes and appoints Jeffrey W. Ubben,
George F. Hamel, Jr. and Peter H. Kamin, and each of them, with full power to
act without the other, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities (until revoked in writing) to sign any
and all amendments to this Schedule 13D, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary fully to all intents and purposes
as he might or could do in person, thereby ratifying and confirming all that
said attorneys-in-fact and agents or any of them, or their or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
ValueAct Capital Master Fund L.P., by
VA Partners, L.L.C., its General Partner
By: /s/ George F. Hamel, Jr.
--------------------------------------
Dated: December 19, 2005 George F. Hamel, Jr., Managing Member
ValueAct Capital Partners Co-Investors L.P., by
VA Partners, L.L.C., its General Partner
By: /s/ George F. Hamel, Jr.
--------------------------------------
Dated: December 19, 2005 George F. Hamel, Jr., Managing Member
VA Partners, L.L.C.
By: /s/ George F. Hamel, Jr.
--------------------------------------
Dated: December 19, 2005 George F. Hamel, Jr., Managing Member
Page 12 of 17
By: /s/ Jeffrey W. Ubben
--------------------------------------
Dated: December 19, 2005 Jeffrey W. Ubben, Managing Member
By: /s/ George F. Hamel, Jr.
--------------------------------------
Dated: December 19, 2005 George F. Hamel, Jr., Managing Member
By: /s/ Peter H. Kamin
--------------------------------------
Dated: December 19, 2005 Peter H. Kamin, Managing Member
Page 13 of 17
Exhibit A
JOINT FILING UNDERTAKING
The undersigned parties hereby agree that the Schedule 13D filed herewith
(and any amendments thereto) relating to the Common Stock of Chiron
Corporation is being filed jointly on behalf of each of them with the
Securities and Exchange Commission pursuant to Section 13(d) of the
Securities Exchange Act of 1934, as amended.
ValueAct Capital Master Fund L.P., by
VA Partners, L.L.C., its General Partner
By: /s/ George F. Hamel, Jr.
--------------------------------------
Dated: December 19, 2005 George F. Hamel, Jr., Managing Member
ValueAct Capital Partners Co-Investors L.P., by
VA Partners, L.L.C., its General Partner
By: /s/ George F. Hamel, Jr.
--------------------------------------
Dated: December 19, 2005 George F. Hamel, Jr., Managing Member
VA Partners, L.L.C.
By: /s/ George F. Hamel, Jr.
--------------------------------------
Dated: December 19, 2005 George F. Hamel, Jr., Managing Member
By: /s/ Jeffrey W. Ubben
--------------------------------------
Dated: December 19, 2005 Jeffrey W. Ubben, Managing Member
By: /s/ George F. Hamel, Jr.
--------------------------------------
Dated: December 19, 2005 George F. Hamel, Jr., Managing Member
By: /s/ Peter H. Kamin
--------------------------------------
Dated: December 19, 2005 Peter H. Kamin, Managing Member
Page 14 of 17
Exhibit B
LETTER
VAC
VALUEACT CAPITAL
December 19, 2005
VIA EMAIL AND OVERNIGHT MAIL
Howard H. Pien
Chairman
Chiron Corporation
4560 Horton Street
Emeryville, CA 94608-2916
Dear Howard:
ValueAct Capital owns approximately 9.8 million shares of Chiron common
stock, acquired between December 2004 and December 2005. This represents
5% of all Chiron common shares outstanding and 9% of shares held by
shareholders other than Novartis.
We intend to vote against the proposed acquisition of Chiron by Novartis
at the upcoming shareholder meeting that was announced in the Schedule
14A filed with the Securities and Exchange Commission (SEC) on November
25, 2005. Further, we are seriously considering whether to demand
appraisal rights pursuant to Section 262 of the Delaware General
Corporation Law.
In our opinion, the merger consideration of $45 in cash per share is not
fair from a financial point of view to the holders of Chiron common
shares other than Novartis. Both the financial valuation and merger
premium analyses supporting this transaction are flawed and understate
the value to Chiron common shareholders of selling control of the
company.
The financial valuation analyses attached to the Schedule 14A and the
Schedule 13E-3, both filed with the SEC on November 25, 2005, materially
understate the value of Chiron shares. The multiples analysis included
therein assign Price to Earnings (P/E) multiples to Chiron's projected
2006 and 2007 earnings per share. This analysis is shortsighted and
incomplete because Chiron's internal financial projections, included in
both filings, show the company's earnings per share growing from $1.58 in
2006 to $4.46 in 2010, a compound annual growth rate of 30%. In addition,
the earnings projected in these filings would generate an estimated $1.8
billion of cumulative free cash flow over the period from 2006 to 2010.
By applying Chiron's historical P/E multiples of 25x or more to this
$4.46 of 2010 earnings per share and adding the $1.8 billion, or
approximately $8.50 per share of cash, a stock price of $120 or more in
2010 is justified. Discounting these 2010 stock prices at any reasonable
rate, would value Chiron's stock today at well in excess of $45.
Page 15 of 17
In addition, the merger premium analysis included in these filings states
that the $45 consideration represents a 23% premium to Chiron's stock
price on August 31, 2005, the last day prior to Novartis' announcement of
its offer to purchase the shares it did not already own for $40 per
share. In fact, Novartis made the August 31 offer while in possession of
material inside information. The Schedule 14A clearly states that
Novartis conducted diligence with respect to Chiron from May 31, 2005 to
August 12, 2005, including two visits to Chiron's Liverpool Fluvirin
facility, and a detailed review of the results of the U.S. Food and Drug
Administration's (FDA) inspection of the Liverpool plant in July 2005.
The FDA inspection results were so material to Novartis that it informed
Chiron in June 2005 that it could not decide whether or not to make an
offer without reviewing them.
Importantly, due to its position on Chiron's Board of Directors, Novartis
had access to communications from the FDA around August 31, 2005
regarding the remaining conditions for Chiron to re-enter the U.S. flu
vaccines market. Chiron issued a press release on August 31 announcing
that the FDA had found its remediation plans to be "generally acceptable"
but warned of several further conditions to re-enter the market,
including successful production, testing and FDA release of the vaccine.
Reflecting the highly conditional nature of this announcement, Chiron's
stock price was barely changed on August 31. As participants in the
Boardroom, however, Novartis had access to the FDA's list of conditions
and must have known that a return to market was, in fact, highly likely.
As it turned out, Chiron began shipping flu vaccine to the U.S. on
October 17, 2005.
Even though Chiron's press release of August 31 was conditional,
understated and did not provide full information about the company's
progress, it still provided a positive incremental datapoint. It is
customary for insiders to be required to wait at least two business days
from the announcement of market moving information before buying or
selling stock to allow such information to disseminate in the market and
be accurately reflected in the stock price. By making its offer on the
day of the August 31 announcement, and effectively using that day's price
(before the market had time to react to this positive information) to
justify its merger premium, Novartis did not honor this custom, and may
in fact have violated the spirit of Chiron's own policy regarding
director trading blackout policy. It would be interesting to know if
other Chiron directors were subject to a blackout on buying or selling
Chiron stock on August 31.
Any analysis of the premium to the August 31, 2005 stock price must
acknowledge that at that time, the public market was uninformed as to
Chiron's improving fundamental prospects, and that Novartis used its
information advantage to present a premium to an undervalued stock price.
Remembering that Chiron's stock price was around $45 in October, 2004
before the company lost its flu vaccine license, we can only conclude $45
(or more, given the growth in the Biopharmaceuticals and Blood Testing
businesses) is an appropriate basis for any merger premium analysis for a
purchase of Chiron now that it has regained this license.
Novartis' opportunistic bid of $40, when the stock was trading at $36,
caused a significant turnover in Chiron's shareholder base, moving a
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large number of shares into the hands of merger arbitrageurs and
discouraging long term investors from buying the stock for its improving
business fundamentals. Constrained by the overhang of a Novartis bid,
Chiron's stock did not move up to reflect the October 17, 2005 flu
vaccine shipments. Nor did it move up after the announcements of October
5, 13 and 25 regarding clinical trial advances in key pipeline products,
including the flu cell culture vaccine. Nor did it move up after the
October 25 announcement of a contract to supply the U.S. Department of
Health and Human Services with an emergency stockpile of pandemic flu
vaccines. Nor did it move up after the December 1 announcement of the FDA
approval of the PROCLEIX(R) West Nile Virus Assay. Since August 31, 2005,
Chiron's stock price has reflected only one thing: the Novartis bid.
Under the terms of the 1994 Governance Agreement pursuant to which
Novartis acquired its stake in Chiron, in a buy out negotiation Chiron
has the option of rejecting all Novartis bids. If Novartis then requests
binding arbitration, Chiron has the option to delay arbitration up to one
year. This strategy would have allowed Chiron's improving business
fundamentals to be recognized in the public markets, and strengthened the
company's hand in such negotiations. Based upon the disclosures in the
"Fairness of the Merger; Recommendation of the Non-Novartis Directors of
Chiron's Board of Directors" section on pages 7-9 of the Schedule 14A, it
does not appear that the non-Novartis directors seriously considered
these options.
The terms of the 1994 Governance Agreement state that if Novartis
proposes a buy out transaction, it must offer a price based upon a "third
party sale value", the value that an unaffiliated third party would be
expected to pay in a control transaction. It is customary for a control
transaction to incorporate a control premium to the standalone value of a
company, and in fact, analysis of comparable control transactions is
included in the Schedule 13E-3. However, the Schedule 14A does not
include control premiums in the list of considerations of the Chiron
board. The Schedule 14A states that the Chiron board approved the merger
based on, among other factors, "the judgment of the non-Novartis
directors that a price higher than $45.00 per share could not likely be
obtained".
Chiron's own financial advisors, as reported on page 5 of the Schedule
14A, reached an initial valuation for the stock of "$46.00 per share or
higher". However, with the stock's trading range held captive to an
inappropriately timed Novartis bid, the non-Novartis directors determined
they could not obtain a price higher than $45 from Novartis, and agreed
to this price. In our opinion, $45 per share does not reflect the true
value of Chiron's expected earnings, and does not reflect a control
premium for all shareholders. ValueAct Capital will not vote in favor of
the merger transaction.
Sincerely,
/s/ G. Mason Morfit
G. Mason Morfit
Partner
ValueAct Capital
cc: J. Richard Fredericks, Director
Denise M. O'Leary, Director
Dr. Edward E. Penhoet, Director
Dr. Raymund Breu, Director
Dr. William J. Rutter, Director
Vaughn D. Bryson, Director
Dr. Paul L. Herrling, Director
Pierre E. Douaze, Director
Lewis W. Coleman, Director
Dr. Pieter J. Strijkert, Director
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