An ImClone Deal Will Get Done

Whatever you think of his tactics, it’s hard to argue that activist investor Carl Icahn hasn’t done a good job of keeping things interesting for the companies he owns shares in.

On Monday, only four days after Bristol-Myers Squibb (NYSE: BMY  ) made public its $4.5 billion buyout offer for ImClone Systems (Nasdaq: IMCL  ) , Icahn and ImClone came out swinging, claiming that the offer “greatly undervalues” ImClone.

Icahn’s role in the ImClone buyout negotiations is going to be much different than his role in the failed buyouts of Biogen Idec (Nasdaq: BIIB  ) last year or Yahoo! (Nasdaq: YHOO  ) earlier in the year. Unlike with Biogen or Yahoo!, Icahn already controls ImClone’s board of directors, and being the chairman of ImClone’s board allows him to steer the negotiations on ImClone’s side of the equation from the start.

The luxury of not having to threaten a shareholder boardroom proxy battle with ImClone should not be overlooked, either. With Biogen and Yahoo!, Icahn was battling with the companies while simultaneously trying to portray them as good takeover candidates worth a premium price. Needless to say, Icahn wasn’t exactly playing from a position of strength in those cases -- he was just a minority shareholder with no representatives on their boards -- and surely all the potential acquirers saw this as well.

With ImClone, Icahn has an additional benefit: It isn’t tied to any sticky partnership agreements that could put a fork in Bristol-Myers’ buyout talks. Any potential Biogen acquirer, for instance, faced significant hurdles untangling Biogen’s ownership and change-of-control provisions for two of its three most important drugs.

Conversely, ImClone’s most valuable asset, its lead drug, Erbitux, is already partnered to Bristol-Myers in the U.S. This fact alone makes ImClone less attractive to many other big pharmas and makes it more likely that Icahn won’t turn down a deal with Bristol.

Right now, Icahn is doing everything he can to play up ImClone’s bargaining position in the buyout talks. For instance, ImClone’s press release yesterday discussed how it has a pipeline compound that could potentially compete with Erbitux, and could still be completely under ImClone’s (or a potential acquirer’s) control.

ImClone also discussed spinning off Erbitux from the rest of its assets, like its other pipeline compounds. This spin-off strategy sounds similar to what PDL BioPharma (Nasdaq: PDLI  ) and Enzon have proposed doing with their revenue-generating assets and drug development businesses. Ostensibly, this would make it easier for other drugmakers to put in bids to acquire the rest of ImClone without having to pay up for the diminished upside of Erbitux.

While Icahn hasn’t had much luck getting huge buyout marriages arranged in the past 12 months with Yahoo! or Biogen, he has had plenty of success with other companies. Earlier in the year, Oracle (Nasdaq: ORCL  ) paid a nice premium to acquire BEA Systems, which Icahn held shares of. And last year, another Icahn biotech bride-to-be, MedImmune, was acquired for a substantial premium by AstraZeneca (NYSE: AZN  ) .

The deal may or may not get done for much more than the $60 per share that Bristol-Myers is already offering, but for the reasons listed above, I think Icahn is sure to get some sort of deal done with ImClone in the coming months.

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Fool contributor Brian Lawler owns shares of PDL BioPharma but no other company mentioned in this article. The Fool has an A+ disclosure policy.


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