XOMAO Preferreds Face Call Risk After Ligand Acquisition

Ligand Pharmaceuticals (LGND) announced on April 26 its agreement to acquire XOMA Royalty Corporation (XOMA), a fellow biotechnology royalty aggregator. The deal creates a larger combined entity that owns royalties on approved drugs and clinical-stage assets. The announcement did not specify the treatment of XOMA's outstanding preferred stock (NASDAQ:XOMAO), which had been a steady income vehicle for yield-focused investors. That silence is the core risk event for preferred holders.

The merger combines two companies that buy and manage royalty streams. XOMA Royalty had issued the XOMAO preferreds to fund its royalty purchases. These securities carry a fixed dividend rate and trade at a premium or discount depending on the company's financial health. Now, with Ligand taking over the entire equity of XOMA, the preferreds are a legacy obligation that Ligand may choose to simplify or eliminate.

The Merger and the Preferreds

The announcement changes the fundamental calculus for XOMAO owners. In a typical acquisition of a company with preferred stock, the acquirer can assume the preferred, convert it into its own preferred, or redeem it at the call price – often par value of $25 per share. The source did not specify which path Ligand intends. The acquisition rationale – combining two royalty aggregators to create scale and cost synergies – suggests Ligand may want a clean capital structure. If Ligand redeems XOMAO at $25, holders who bought at a premium (the stock traded above $25 in recent months) face an immediate capital loss. Those who bought near par would lose the dividend stream, which had been a reliable payout.

Exposure and Timeline

Holders of XOMAO are primarily income-oriented investors who seek the roughly 7% yield the preferreds offered while XOMA operated independently. The timeline for the acquisition includes shareholder votes from both companies and customary regulatory approvals. The merger is expected to close in the third quarter of 2025, though the source did not provide a specific date. Until the definitive proxy statement is filed, the preferreds' fate remains uncertain. That document will outline the board's recommendation for the preferred stock, including any redemption or conversion proposal.

What Would Reduce the Risk and What Would Worsen It

The risk for XOMAO holders would decline if Ligand elects to assume the preferreds under their current terms, continuing to pay the same dividend and allowing trading on the open market. A conversion into Ligand preferreds with a similar yield would also be favorable, as it would maintain the income stream with a potentially stronger credit backing. Conversely, the risk escalates if Ligand redeems the preferreds at par. That outcome would force holders to reinvest in a lower-yield environment. Additionally, if the merger fails or is delayed, XOMA's standalone credit profile may weaken, putting the preferred dividend at risk. The absence of any explicit commitment from Ligand in the announcement is the key source of uncertainty.

Next Decision Point for XOMAO Holders

The next concrete catalyst for XOMAO is the filing of the merger proxy statement, which will include the terms for each class of XOMA Royalty securities, including the preferreds. Until that filing, the preferreds trade on speculation about Ligand's intentions. Income investors who rely on the monthly or quarterly dividend from XOMAO should assess their alternatives now. A call at par would represent a forced exit; a conversion would mean a different issuer but possibly similar cash flows. The proxy will settle that question. Until then, XOMAO is a risk-event trade, not an income hold.

For broader context on how mergers affect income securities, see our market analysis and stock market analysis.