Auxilium’s obligation to effectively migrate to Canada through a merger with QLT has a limited “out” if the U.S. inversion rule is amended

It is proposed that Auxilium, a Delaware biopharmaceutical company, merge with an indirect Delaware subsidiary of QLT, a B.C. biotech company. On the merger, Auxilium shareholders would become holders of around 76% of the common shares of QLT, i.e., less than the 80% threshold that would be one of the touchstones for QLT to otherwise be deemed to be a U.S. corporation under the current U.S. inversion rule in Code s. 7874. Auxilium’s obligation to complete the merger is subject to there being no adverse change in s. 7874 (whether or not yet effective) by October 31, 2014 or a bill to so amend s. 7874 having passed both houses of Congress by then – whereas the outside date for the merger is December 31, 2014. Accordingly there are circumstances where the merger might go ahead even if there has been an adverse s. 7874 change or such a change is well advanced.

The disposition of their Auxilium shares for QLT shares will not occur on a rollover basis for U.S. shareholders in light of the Code s. 367(a) rules.

Neal Armstrong and Abe Leitner.  Summary of S-4 of QLT Inc. under Mergers & Acquisitions – Cross-Border Acquisitions – Inbound – Reverse Takeovers.