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Pediapharm to buy 2 speciality pharmaceutical companies, raise C$60M in funds

Pediapharm Inc. agreed to buy Canada's Medexus Inc. for C$23 million and the U.S. business of Germany's medac GmbH for up to US$50 million.

Medexus is focused on joint treatments, women's health and dermatology. Medac's U.S. unit, called Medac Pharma Inc., sells rheumatoid arthritis therapy Rasuvo.

Under the Medexus deal, Pediapharm will pay Medexus shareholders by issuing 67,647,059 common shares at an issue price of 34 Canadian cents per share. After the acquisition closes, Medexus founder, president and CEO Ken d'Entremont will join Pediapharm as a director and COO.

The acquisition of Medac Pharma will involve a cash payment of US$13.1 million, with the rest to be paid through certain other transactions in cash and stock. Pediapharm will pay another US$1.9 million in the form of units priced at 34 Canadian cents per unit, with each unit containing 1 share and 0.5 of a warrant.

Each full warrant can be exercised at 63 cents to buy 1 Pediapharm share for five years after the date of the issue.

The Canadian drugmaker, which makes treatments for children, will pay US$5 million in cash within six months after the U.S. approval of Medac Pharma's new product, subject to Medac providing the drug supplies. It will pay Medac a total of US$30 million in form of annual payments equalling 7.5% of Pediapharm's aggregate consolidated EBITDA.

After the deal closes, Pediapharm will enter a 12-year supply agreement, under which medac will provide the company with its products for sales in the U.S.

Both the acquisitions are expected to be completed by Sept. 28.

Upon completion of the deals, Pediapharm's board will be reconstituted to consist of seven directors, comprising four existing directors and three new directors. The existing directors include Pierre Lapalme, Sylvain, Chretien, Michael Mueller and Benoit Gravel, and the new joiners would be d'Entremont, Stephen Nelson and Peter Velden.

Nelson is a senior vice president, portfolio manager and investment adviser with TD Wealth Private Investment Advice, and Velden is the managing general partner of Lumira Capital.

Pediapharm also plans to raise up to C$60 million through an offering to help finance the acquisition. The offering, which is expected to close Sept. 21, will involve the issuance of subscription receipts that can be exchanged with the company's convertible debentures or its units.

The debenture subscription receipts will be priced at C$1,000 apiece, which can then be exchanged for one C$1,000 convertible debenture. Each subscription receipt for units will be priced at 34 Canadian cents apiece, which can then be exchanged for 1 Pediapharm unit consisting of 1 common share and a 0.5 of a warrant.

Pediapharm plans to use the net proceeds from the offering to fund the cash payment for Medac Pharma acquisition, with the rest to be used for operations and strategic initiatives.

Bloom Burton Securities Inc. advised and assisted Pediapharm in connection with the transactions. Cormark Securities Inc. and Mackie Research Capital Corp. will act as co-lead agents and joint book runners for the brokered portion of the offering.