July 17, 2012 Leave a comment
Sometimes news gives you the opportunity to observe what you learn in theory in class. Take mergers and acquisitions, for instance: since a few weeks I am following with some interest the story between GlaxoSmithKline (GSK) and Human Genome Sciences (HGSI). This story started a long time ago so let’s go back in time …
Human Genome Sciences discovered the now-called Benlysta drug decades ago and SmithKline Beecham (now GlaxoSmithKline) supported the research efforts. The bid was considered bold at that time because it was one of the first drug to use data mining and genome mining to discover and develop new medicines.
For information, Benlysta is a bioengineered antibody that blocks a protein called BLyS. This protein is elevated in lupus and other autoimmune diseases and is believed to contribute to production of cells that attack blood vessels and other healthy tissue. Benlysta was approved by the FDA in March 2011, by the European Commission and by the Canadian regulator in July 2011.
In April 2012 GSK made an unsolicited offer to acquire HGS at $13 per share in cash, valuing HGS at around $2.6 billion (more than 80 percent premium to the average stock’s closing price of April 1818, the last day before the private offer was publicly disclosed). HGS rejected the offer saying it did not reflect its inherent value. HGS board authorised the company to seek other “strategic alternatives”. At that time I was wondering what other company would buy HGS, given that GSK would have most probably secured the control of Benlysta as well as other drugs that they financed, would they be produced by HGS or any other company. Other people noted that HGS might have partly reacted out of concern for shareholders who purchased shares at an average price that’s higher than the offer.
Nevertheless GSK started its tender in May 2012 and ran it until June 7th (later extended to July 16th). GSK took the offer directly to shareholders and apparently did not participate in the auction HGS designed to counter GSK offer.
At approximately the same (May 2012) HGS adopted a shareholder rights plan, or “poison pill“. The effect would indeed be that if a third party attempt to buy up 15% or more of its stock without the board’s support, holdings will be automatically diluted. This would reduce the interest in the takeover (apparently). Some shareholders did not agree with that provision and sued HGS. Of course GSK asked shareholders to defy HGS board and even prepared a new board.
Finally, beginning of July, we could read that talks were held behind closed doors to reach an agreement between GSK and HGS. And in the end HGS accepted GSK offer of $14.25 per share share, which values HGS at approximately $3.6 billion. The official press release mention that the tender offer will last until July 27th.
Matthew Herper from Forbes already drew three lessons from this acquisition and FT Lex made general comments on big pharma -vs- biotech. I wonder if this step (that could be seen as natural given existing collaborations) will attract much more attention than that but it was a nice game to follow.
Disclaimer: GlaxoSmithKline is my current employer but I have no stake in this deal nor was/am I involved in any way. All information disclosed here is publicly available. Opinions are mine only.
Photo credits: Corporate Cliche Shot No. 57 – ‘The Handshake’ by Drew Levy on Flickr (CC-by-nc-nd)