Biogen Taking On Debt to Buy ...

It's not money for the acquisition that activist investor Carl Icahn has been worried about. Biogen IDEC (Nasdaq: BIIB) issued $1 billion worth of debt last week. As Biogen stated in a press release, the new debt will be used to pay off old debt that was used as part of its $3 billion "Dutch auction" stock buyback last year.

Even though Icahn likes to see his biopharma holdings involved in acquisitions, apparently he doesn't like the idea of them doing the acquiring. In January, Icahn hinted at a possible upcoming proxy battle, citing his disagreement with the strategic direction Biogen might be taking as the media was reporting that Biogen might be looking to do a large transformational acquisition.

The $1 billion in new debt is being used to pay off part of the $1.5 billion bridge loan that Biogen took out last year for the stock buyback. Speaking of buybacks, most drugmakers don't get their feet held to the fire enough for wasteful shareholder value-destroying buybacks, or praised when they smartly manage their cash.

Biogen's Dutch auction in June of last year was anything but shareholder-destroying. The $53-per-share price it paid last year for what was 16.4% of shares outstanding at the time looks to be a pretty good price, considering it's 10% less than what shares are trading for today.

That's an excellent return that Biogen has earned on its money and contrasts sharply with buybacks from companies like Amgen (Nasdaq: AMGN), which has been a chronic destroyer of shareholder cash in recent years. Drugmakers are never held accountable enough for their financing decisions, even though a bad use of cash can easily be just as disastrous as a failed clinical trial, so Biogen gets a gold star so far for its well-timed buyback last year.