Nelson Research OKs Ethyl Corp.’s Offer of $5.75 Per Share

Directors of Nelson Research & Development Co. agreed over the weekend to sell the company for a sweetened $5.75 a share, or nearly $53.1 million, to Ethyl Corp.

The proposed merger would make the small Irvine-based drug developer a wholly owned subsidiary of Ethyl, a Richmond, Va., chemical and petroleum products maker.

A spokesman for the East Coast firm said Monday that all Nelson Research employees would be retained and that operations would continue in Irvine.

Also benefiting from the deal would be Eric L. Nelson, founder of the 13-year-old Irvine company who left the helm early this year but remained a director. He sold his 13.8% stake in his company to Ethyl on Dec. 5 for $5 a share. The Nelson Research board had then rejected the $5-a-share offer from Ethyl.

But under the final merger agreement, he would get the additional 75 cents a share that Nelson Research negotiated during the weekend, the Ethyl spokesman said.

Executives at Nelson Research refused to talk about any aspect of the merger, including the scheduling of a shareholders meeting to vote on the deal. In a prepared statement, Ethyl said Nelson Research directors met Sunday and unanimously approved the merger.

The acquisition should be a good deal for Nelson Research shareholders, mainly because the company has been losing money for nearly three years, said Larry Selwitz, an industry analyst with Bateman Eichler, Hill Richards Inc. in Los Angeles.

“Nelson Research has a long string of products, but the difficulty is that you never get a sense of how far along (toward completion) any of them might be,” he said.

Ethyl sees in the Irvine firm “a promising group of potential new drug products and research relationships with an outstanding network of scientists and advisers at leading universities and research hospitals throughout the world,” said Floyd D. Gottwald Jr., Ethyl’s chairman, in the prepared statement.

“Ethyl can provide the funds and support needed to develop and commercialize the most promising of Nelson Research’s discoveries through the extensive and time-consuming development and approval process,” Gottwald said. “These resources generally are beyond the capabilities of smaller companies.”

Offer Termed Fair

While Ethyl intends to own Nelson Research outright, the merger agreement provides that the Irvine company will issue 1.7 million shares of new stock to Ethyl should any third party buy 20% or more of the current 9.2 million common shares outstanding before the merger takes place. That would enable Ethyl to maintain control of more than 80% of the company.

Ethyl’s prepared statement also quoted Peter Upton, chief executive officer of Nelson, as saying that the offer was “fair” and that the merger “is in the best interests of the company and its shareholders, in view of the uncertainty of drug research and the long time-scale required to make Nelson Research profitable.”

On Dec. 12, after its stock closed at $3.25 a share, Nelson Research said it had received an “unsolicited” bid from Ethyl to buy the company for $5 a share, which Nelson Research directors rejected Thursday. But news of continuing negotiations spurred trading in Nelson Research stock Friday, when it closed at $5.125 a share. Word of the new agreement Monday prompted further activity and the stock closed at $5.50 per share in moderate over-the-counter trading.

Nelson Research attracted attention in the early 1980s with the development of Azone, a patented product that makes skin more porous and allows topically applied drugs to penetrate the skin more quickly.

But since its last profitable year--1983--the company has posted net losses totaling $4.44 million, including a net loss of $1.8 million on revenues of $2.1 million in the first nine months this year.

Ethyl, which has been funding drug-related research at several companies in recent years, produces such drug intermediates as the pain reliever ibuprofen, which is used in such over-the-counter drugs as Advil and Nuprin. Ethyl posted a $117-million net income last year on revenues of $1.5 billion.