Vivus Bankruptcy Plan to Shift Equity to Icahn Unit Rejected (1)

Sept. 11, 2020, 4:46 PM; Updated: Sept. 11, 2020, 6:19 PM

Vivus Inc. failed to get court approval of a reorganization plan that would have given the bankrupt pharmaceutical company’s equity to a subsidiary of Icahn Enterprises after a judge questioned equity valuation and how shareholders would fare.

Four shareholders of the publicly traded company had objected to the plan because it wipes out their interests. Judge Laurie S. Silverstein of the U.S. Bankruptcy Court for the District of Delaware said Friday that she was ordering the U.S. Trustee, the Justice Department’s bankruptcy watchdog, to appoint a committee of shareholders to participate in the case.

Silverstein didn’t entirely kill Vivus’ plan, and intends to keep the record open after hearing several days of testimony on it.

IEH Biopharma LLC, a subsidiary of Icahn Enterprises that holds Vivus’ convertible notes, would have received 100% of the equity in the company emerging from bankruptcy. That’s worth about 76% of IEH’s about $171 million claim, according to Vivus’ plan disclosures.

Vivus didn’t satisfy its burden of proving it met all the requirements in the bankruptcy code for confirming a plan, Silverstein said.

Silverstein acknowledged the plan would have paid trade creditors 100%, but she questioned if it was fair for shareholders. Most shareholders didn’t object to the plan, and would have shared pro rata from a pool of $5 million as part of a settlement.

Company Valuation Problematic

The evidence supporting the company’s valuation, however, wasn’t consistent with recent public filings and equity offerings, Silverstein said.

Vivus didn’t market the company for sale, generally considered the best way to determine a company’s actual value. Instead, Vivus had a restructuring support agreement in place with IEH Biopharma when Vivus filed Chapter 11 in July. The deal centered around a debt-for-equity swap that would negate the need for a company sale.

The court wasn’t satisfied with how certain pharmaceuticals in production were valued by witnesses or experts. How to value a clinical drug “remains an open issue for me, for which I could use assistance,” Silverstein said.

The court didn’t find fault with IEH Biopharma. “There’s no evidence that IEH did anything untoward,” Silverstein said.

Vivus’ initial agreement with shareholders also would have excluded any shareholders who objected to the deal or the plan. “Shareholders were actually discouraged from challenging the valuation or the plan,” Silverstein said.

The plan would have reduced Vivus’ funded debt from about $235 million to $90 million under a new exit loan, the company had said.

That exit loan was to be used to pay off about $64 million of secured notes and provide working capital to keep the company in business, according to Vivus’ plan disclosure statement.

Now Vivus will have to deal with a committee representing shareholder interests as it renegotiates or submits a new plan.

The case is In re Vivus, Inc., Bankr. D. Del., No. 20-11779, hearing 9/11/20.

(Updated with additional reporting throughout.)

To contact the reporter on this story: Daniel Gill in Washington at dgill@bloomberglaw.com

To contact the editors responsible for this story: Roger Yu at ryu@bloomberglaw.com; Laura D. Francis at lfrancis@bloomberglaw.com

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