Look Who's Itching for a Fight

After a rather lackluster start, things look like they might finally be heating up in GlaxoSmithKline's (NYSE: GSK  ) hostile takeover of Human Genome Sciences (Nasdaq: HGSI  ) . Reuters reports that Glaxo is looking for "independent" directors to nominate for Human Genome's board.

The directors Glaxo backs wouldn't be all that independent, of course. Instead they'd be doing Glaxo's dirty work to remove the poison pill and then eventually sell the company to Glaxo, perhaps at a slight premium to Glaxo's $13-per-share bid just to appease shareholders.

The poison pill instituted by the current board gives current shareholders the right to additional shares under a few provisions, including if someone acquires 15% of the outstanding shares. The dilution makes it difficult to acquire the company without the board's approval.

At this point it doesn't make much sense for investors to vote for Glaxo's slate. Installing them on the board would result in a takeout around $13 per share, which is substantially lower than where it currently trades.

Then again, some of Human Genome's shareholders seem hell-bent on getting the company sold even though selling their shares on the open market and moving on would be in their best interest. One shareholder filed a lawsuit asking to block the poison pill.

What Human Genome needs is a white knight to come in and top Glaxo's $13-per-share bid. That's easier said than done since Glaxo and Human Genome are partners on their lupus drug Benlysta and Glaxo has rights to a couple of other drugs developed by Human Genome. But ImClone Systems found a suitor, Eli Lilly (NYSE: LLY  ) , to come in and top its partner, Bristol-Myers Squibb's (NYSE: BMY  ) lowball bid for the company, so anything is possible.

Nominating a new board puts Human Genome under the gun. If investors aren't confident that management can find a higher bidder, shares will slip, perhaps below that magical $13-per-share line where voting for Glaxo's slate of candidates for the board starts to look appealing.

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Fool contributor Brian Orelli holds no position in any company mentioned. Click here to see his holdings and a short bio. 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.


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