Acquisition of Sangamo Therapeutics France S.A.S.

9 Months Ended

Sep. 30, 2019

Acquisition of Sangamo Therapeutics France S.A.S.

ACQUISITION OF SANGAMO THERAPEUTICS FRANCE S.A.S.

On July 20, 2018, Sangamo entered into various agreements with the goal of eventually acquiring 100% of TxCell’s share capital. The Company entered into a Share Purchase Agreement (“SPA”) with certain shareholders of TxCell, pursuant to which it acquired 13,519,036 ordinary shares of TxCell (“TxCell Ordinary Shares”) as part of a block transaction that closed on October 1, 2018 (the “Acquisition Date”). Additionally, the Company and TxCell entered into a Tender Offer Agreement pursuant to which it agreed to acquire 11,528,635 TxCell Ordinary Shares for the same price per share via a cash tender offer that closed on November 23, 2018. Following the block transaction, cash tender offer, and other open market purchases of shares, the Company owned 98.2% of the TxCell Ordinary Shares as of December 31, 2018 (or 25,047,671 TxCell Ordinary Shares). In addition to the SPA and the tender offer agreement, the Company also entered into arrangements with the holders of approximately 477,000 “free shares” of TxCell pursuant to which the Company has the right to purchase such shares from the holders thereof (a call option) and such holders have the right to sell to the Company such shares from time to time through mid-2021 (a put option) (collectively the “Free Shares Options”). In June 2019, TxCell became a sociéte par actions simplifiée (S.A.S.) and was renamed “Sangamo Therapeutics France.” During the three months ended September 30, 2019, the Company acquired approximately 111,000 vested free shares, including 52,700 from a former executive of TxCell who is now an executive of Sangamo, pursuant to the exercise of the Free Shares Options for approximately $0.3 million of cash, increasing its ownership of the TxCell Ordinary Shares to 98.7% as of September 30, 2019.

At the Acquisition Date, the fair value of the Free Shares Options was estimated to be a liability of $0.2 million. See "Note 2 - Fair Value Measurement-Free Shares Asset/Liability" for information regarding the valuation method. The fair value of the Free Shares Options will vary based on future changes in the Company’s stock price during the option period. The fair value of the Free Shares Options was estimated to be an asset of $0.2 million as of September 30, 2019.

The acquisition of Sangamo France was accounted for as a business combination in accordance with ASC Topic 805, Business Combinations. The operating results of Sangamo France after the Acquisition Date have been included in the Company’s Condensed Consolidated Statements of Operations.

There were no goodwill impairments during the nine months ended September 30, 2019 or during 2018 and, as noted below, substantially all of the non-controlling interest on the Acquisition Date was subsequently acquired by the Company and, accordingly, substantially all of the goodwill is allocated to the Company as of September 30, 2019 and December 31, 2018.

The following table summarizes the estimated consideration transferred and the fair value of the net assets acquired as of the Acquisition Date (in thousands):



	October 1, 2018
Consideration transferred	$	45,911
Fair value of non-controlling interest	35,829
Fair value of TxCell	$	81,740

Cash	$	4,779
Current assets	2,427
Property and equipment	1,857
IPR&D	55,019
Other assets	155
Current liabilities	(9,761		)
Assumed debt liabilities	(4,933		)
Deferred tax liability, net	(6,798		)
Fair value of net identifiable assets acquired	42,745
Goodwill	38,995
Total fair value of net assets acquired	$	81,740

Non-Controlling Interest

The fair value of the non-controlling interest at the Acquisition Date was based on the $2.99 acquisition price per share for the 11,981,867 TxCell Ordinary Shares that were not purchased by the Company in the block transaction on the Acquisition Date. Subsequent to the Acquisition Date and through December 31, 2018, the Company acquired 11,528,635 TxCell Ordinary Shares, which when aggregated with the 13,519,036 TxCell Ordinary Shares acquired at the Acquisition Date, resulted in the Company owning 98.2% of all TxCell Ordinary Shares as of December 31, 2018. During the three months ended September 30, 2019, the Company acquired approximately 111,000 vested free shares for approximately $0.3 million of cash, pursuant to the exercise of the Free Shares Options, increasing its ownership of the TxCell Ordinary Shares to 98.7% as of September 30, 2019.

The fair value of the remaining non-controlling was determined based on the number of outstanding shares comprising the non-controlling interest and the $2.99 acquisition price per share as of the Acquisition Date. The non-controlling interest is presented as a component of stockholders equity on the Company’s Condensed Consolidated Balance Sheets.

Non-controlling interest as of September 30, 2019 was as follows (in thousands):



Non-controlling interest at December 31, 2018	$	739
Fair value of additional shares acquired	(321		)
Loss attributable to non-controlling interest	(179		)
Non-controlling interest at September 30, 2019	$	239