Serono Stands Alone

Well, that was a whole lotta nuthin'.

Serono's (NYSE: SRA) stock spiked up in the fall of 2005 on word that the company had put itself up for sale. Unfortunately for shareholders, they were greeted Monday morning with a "never mind" from management. As a result, shares were down nearly 9% by midday.

Serono's management claimed that none of the offers recognized the company's true value and potential. And given that it had hired GoldmanSachs (NYSE: GS) to handle the process, I'd say it's pretty likely that the bushes were beaten pretty hard in the hopes of finding a buyer.

Since the family that controls Serono holds over 51% of its shares (and about two-thirds of the voting power), it's fair to say that they had a vested interest in getting a good deal. Of course, what makes a good deal for them isn't necessarily a good deal for shareholders -- golden parachutes and such don't help the shareholders.

Now it's time to wonder about the future. Unfortunately, the pipeline is not all that strong. What's more, the probable reintroduction of Tysabri by Elan (NYSE: ELN) and BiogenIdec (Nasdaq: BIIB) isn't going to be good news for the Rebif franchise -- no matter what the new label for Tysabri looks like.

Of note, the company now appears to be on the prowl itself. Management stated that it will "actively pursue opportunities for growth through acquisitions," and it wants to increase the authorized share base so that it can do deals. That spells near-certain dilution for today's shareholders, for some decidedly uncertain long-term benefits from acquisitions.

As you might have gathered already, I'm not thrilled about this turn of events. Given how acquisitive Novartis (NYSE: NVS) has been of late, if it couldn't do a deal with Serono, you've got to ask yourself why. What's more, I just don't think all that highly of the job that Serono's management has done to date, so I don't have a great deal of confidence in this "new and improved" strategy for the future.

Maybe management will surprise me, but my hunch is that this company will still get sold someday -- the risk now being that it comes later and at a lower price after management fritters away shareholder equity on ill-considered deals.

For more pharmaceutical Foolishness:

• Novartis Bulks Up Its Pipeline
• Tysabri: As Bad as AIDS?
• Serono: On the Block and on the Clock

Biogen Idec is a Motley Fool Stock Advisor pick. Take the newsletter dedicated to the best of David and Tom Gardner's picks for a 30-day free spin.

Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).