GlaxoSmithKline is taking the hostile route in its $2.60 billion bid to buy Human Genome Sciences, going straight to shareholders with its previously-rejected offer instead of participating in the latter's "strategic alternatives review".
Last month, the board at HGS, which developed the lupus drug Benlysta (belimumab) with GSK, turned down the $13.00 per share offer, which represented an 81% premium to its stock price on April 18, the day before the bid was disclosed. The rejection followed consultation with financial and legal advisors and the board set it believed the bid "does not reflect the value inherent in HGS".
HGS hired Goldman Sachs and Credit Suisse to explore "strategic alternatives…including, but not limited to, a potential sale of the company" and GSK was invited to participate in this process. However, the UK major is not interested in that option.
Participation in review 'unnecessary'
GSK says it is taking its offer directly to HGS shareholders in part because "participation in the process is unnecessary as its offer is not conditioned on due diligence or financing and can be completed expeditiously". The drugs giant added that "it is important for HGS shareholders to understand that GSK is committed to proceeding with its offer", claiming "there is clear strategic and financial logic to this combination".
Furthermore, GSK went to say it believes that the four weeks that have passed since its offer made on April 11, together with the additional 20 days its offer must remain open following its commencement, "provides a reasonable amount of time for HGS to complete its review of alternatives".
The company went on to argue that its offer provides "immediate liquidity at a substantial premium while eliminating further exposure to the significant execution risk inherent in HGS achieving its future growth objectives" and takes into account the value of Benlysta, plus that of two other partnered therapies - the late-stage cardiovascular drug darapladib and albiglutide, currently in Phase III for the treatment of type 2 diabetes.
"In respect of HGS’s desire to assure itself that GSK is not in possession of other material information regarding albiglutide or darapladib", the company said it has provided the US biotech with "the limited additional clinical information available to GSK that can be shared consistent with regulatory and legal constraints". The latter concluded by saying it values the long relationship the firms have had and "has clearly stated its preference to complete a transaction on a friendly basis in a timely fashion". GSK also "remains willing to meet and review its offer with HGS at any time".
HGS answer within 10 days
Pointedly noting that the bid is identical to the price of the proposal it has already rejected, HGS, whose shares have been around the $14.60 mark this week, said it will “carefully review and consider the offer” and make a recommendation within 10 business days of the GSK tender offer being launched. Regarding its strategic review, the firm said the process is ongoing.
Commenting on the move, Ana Nicholls, healthcare analyst at the Economist Intelligence Unit, said that if HGS had been hoping to get GSK to raise its offer, "then it will be disappointed". She believes the bid "is already fairly generous, given that HGS has been loss-making for the past two years".
Although HGS may argue that GSK is merely taking advantage of a share price which has tumbled thanks to disappointing sales of Benlysta, Ms Nicholls says "a sustained rebound is far from a sure thing". She believes that while darapladib and albiglutide have potential, "they have still to get through final trials, and the markets they would be entering are crowded ones".