Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Glaxo's $2.6 Billion Takeover Is Thrown Out

This afternoon, "big pharma" giant GlaxoSmithKline (NYSE: GSK  ) admitted that its formal approach to purchase one of its development partners was abruptly rebuffed last week.

Just say no to Glaxo
GSK's attempt to envelop Human Genome Sciences (Nasdaq: HGSI  ) in a big bear hug backfired when the HGS board of directors immediately rejected its takeover bid.

On April 11, GSK offered $13 a share in cash to acquire the entire equity capital of HGS, which is working with GSK to co-develop three drugs: Benlysta (to treat systemic lupus erythematosus), albiglutide (to treat type-two diabetes) and darapladib (to inhibit lipoprotein-associated phospholipase A2 and, possibly, atherosclerosis).

Yesterday HGS shares closed at $7.17, so GSK's offer represents an 81% premium to the closing price on April 18.

In his April 11 letter to Human Genome Sciences CEO Thomas Watkins, GSK chief executive Sir Andrew Witty explained that this $13-a-share offer offered a 73% uplift to the HGS closing price of $7.53 on April 10, as well as a 66% premium to its 30-day average trading price of $7.83.

Given the generosity of this deal and the fact that GSK and HGS have worked together for nearly 20 years, many HGS shareholders might be tempted to bite GSK's arm off. However, Tom Watkins and his team instantly rejected this approach without even putting it before their shareholders.

Mr Market reacts
HGS is attractive to GSK because absorbing it into GSK's corporate body would give the UK's biggest pharmaceutical company full control of three promising drugs in co-development. However, HGS's wider portfolio could also lure other big-pharma buyers keen to snap up a prized biotech asset.

Hence, in pre-market action before the Nasdaq opened for business this afternoon, HGS shares were trading at $14.28, up 99% and therefore almost double yesterday's closing price.

In his "Dear Tom" letter last week, Witty remarked, "We believe there is clear strategic and financial logic to this combination for both companies and our respective shareholders -- and that now is the appropriate time in the evolution of our relationship for our two companies to combine."

Sir Andrew went on to say: "This offer reflects full and fair value for Human Genome Sciences and the synergies inherent in this combination. It also eliminates substantial execution risk for Human Genome Sciences shareholders and delivers immediate and certain value that is superior to what we believe Human Genome Sciences can reasonably expect to create as a standalone company."

Obviously, Mr. Market disagrees, as HGS shares are set to open comfortably above the $13 per share on the table from GSK.

What next for GSK?
With nearly 200 million HGS shares in issue, GSK's bid of $13 a share is worth around $2.6 billion. While this is a big number, it is tiny in comparison with GSK's market value of nearly 74 billion pounds.

What's more, GSK claims that combining the two companies would produce cost savings of at least $200 million by 2015, with the transaction being earnings-enhancing from 2013.

As I write, GSK shares are up more than 1% at 1,460 pounds, which suggests that its shareholders like the look of its latest corporate land-grab. Hence, I suspect that GSK will have no choice but to raise its game, perhaps lifting its offer for HGS above $15 a share.

Lastly, as a long-term shareholder in GSK, I am delighted that the FTSE 100 firm is using its financial muscle, ultra-low borrowing costs and strong balance sheet to make a play for attractive assets. It's about time this high-yielding, "boring" mega-cap saw a bit of acquisition action!

Motley Fool UK writer Cliff D'Arcy owns shares of GlaxoSmithKline. Motley Fool newsletter services have recommended buying shares of GlaxoSmithKline. The Motley Fool has a disclosure policy.
We Fools may not all hold the same opinions, but we all believe that
considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1867217, ~/Articles/ArticleHandler.aspx, 10/22/2016 8:16:52 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 11 hours ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:02 PM
GSK $41.13 Down -0.30 -0.72%
GlaxoSmithKline CAPS Rating: ***
HGSI.DL $0.00 Down +0.00 +0.00%
Human Genome Scien… CAPS Rating: **