Dell hints at future deals; Odyssey Re buyout looks set; Biogen expected to increase Facet bid

By Cristal Cody

Tupelo, Miss., Sept. 21 - While Dell Inc. said Monday it will buy out computer services company Perot Systems Corp. in a transaction valued at $3.9 billion in cash, the company may not be finished with its deal plans, Dell chairman and chief executive officer Michael Dell hinted during a conference call with analysts.

In the interim, no other competitors are likely to emerge for Perot, an analyst told Prospect News.

Also on Monday, shares of Odyssey Re Holdings Corp. inched up on Fairfax Financial Holdings Ltd.'s new takeover offer of $65.00 a share in cash, $5.00 more than the previous proposal. An analyst said Monday the deal is likely to close with the bump in price.

In other situations, Biogen Idec Inc. went hostile and launched its tender offer to acquire all the outstanding shares of Facet Biotech Corp. for $14.50 each in cash - an offer unlikely to work since the stock is trading above $16.00 a share, an analyst said Monday.

Moving to Wall Street, stocks were mixed on Monday.

The Dow Jones Industrial Average dropped 41.34 points, or 0.42%, to close at 9,778.86.

The Standard & Poor's 500 index fell 3.64 points, or 0.34%, to 1,064.66.

The Nasdaq Composite index closed up 5.18 points, or 0.24%, at 2,138.04.

Dell on the move

Dell said Monday it will launch a tender offer to acquire all of the outstanding class A shares of Perot Systems for $30.00 each in cash, which represents a premium of nearly 68% based on the company's closing stock price on Friday of $17.91.

Perot Systems, a Plano, Texas-based company founded by former presidential candidate H. Ross Perot Sr., provides services that include technology, infrastructure and consulting for clients in health care, government and other commercial segments.

Speculation on Dell's deal-making plans has been in the works since the computer manufacturer hired away International Business Machines Corp.'s mergers-and-acquisition chief, David Johnson, in May. Armonk, New York-based IBM filed suit to stop the switch over a no-compete clause, but a judge has said Johnson may continue to work at Round Rock, Texas-based Dell.

More acquisitions could be in the works.

"We have done about eight other acquisitions in the last few years," Michael Dell said on the conference call Monday. "Our philosophy toward acquisitions has not really changed. I think you'll see us selectively add to our portfolio to build capabilities in areas we see critical for us."

Dell said the acquisition of Perot Systems should position the company for immediate and long-term growth.

Brian Gladden, Dell's chief financial officer, said on the call that "IT services will be a big part of our strategy, and we were very focused on getting a great anchor acquisition, which we think we did."

Ross Perot Jr., chairman of Perot Systems, said on the call that the company operates in about 1,000 hospitals across the world and provides IT services to thousands of physicians.

H. Ross Perot Sr., chairman emeritus of Perot Systems, founded the company in 1988, four years after he sold Electronic Data Systems Corp. to General Motors Corp.

The takeover is expected to close sometime in Dell's November-through-January fiscal quarter.

Joseph Vafi, an analyst with Jefferies & Co., told Prospect News on Monday that the offer is considerable, "given that the stock hasn't traded this high in many, many years."

The last time shares traded this high was 1999, he noted. The stock reached a new yearly trading high of $29.68 on Monday before settling up $11.65, or 65.05%, at $29.56.

"It's very good for shareholders," Vafi said. "The company has interesting opportunities ahead of it in the health-care area, but I think this is a really strong offer from Dell."

No other bidders are expected to emerge for Perot Systems, he said.

"Maybe Cisco [Systems, Inc.] would be the only company that would look at this transaction with a higher bid, but even if they did, it would be marginally higher," Vafi said.

The deal also is not expected to be delayed by regulatory reviews.

"We've seen larger deals in this sector go down without any issues, so I don't think we'll see that here," Vafi said.

Dell shares lost 68 cents, or 4.07%, to close Monday at $16.01.

IBM shares fell 54 cents, or 0.44%, to $121.57.

Shares of San Jose, Calif.-based Cisco closed up 23 cents, or 0.98%, at $23.63.

'Nice return' for Odyssey Re

Shares of Odyssey Re closed up $2.04, or 3.26%, at $64.62 on Monday.

On Friday, the companies announced they had agreed on the $1 billion transaction.

The bid represents a 29.8% premium over Odyssey Re's share closing price on Sept. 4, when Fairfax first proposed to buy the remaining stock at $60.00 a share.

Fairfax already owns 72.6% of the outstanding shares of Odyssey Re, a Stamford, Conn.-based property and casualty reinsurance underwriter.

Toronto-based Fairfax, a property and casualty insurance and reinsurance company, intends to use $983 million in net proceeds from its recent public offering of stock along with available cash to fund the tender offer.

Marshfield Associates, Inc., Odyssey Re's largest minority shareholder and manager of more than 2.7 million shares, has agreed to tender its shares.

Odyssey Re's other shareholders are "likely to tender to the increased offer," an analyst said Monday. "We estimate that the majority of minority condition could be satisfied with 13% of minority shares being tendered. Shareholders are likely to generate a nice return on their investment."

Based on Odyssey Re's initial public offering price of $18.00 a share in June 2001, the offer represents a compounded annual return of 17.3%, the companies said.

Fairfax shares slipped $2.39, or 0.64%, to close at $368.88.

Biogen gets aggressive

Biogen Idec said Monday that its hostile tender offer for shares of Facet at $14.50 a share in cash will expire on Oct. 19.

Facet's stock closed up 19 cents, or 1.15%, at $16.74 on Monday.

Biogen's offer represents a premium of about 64% over the $8.82-per-share closing price of Facet's stock on Sept. 3, the last trading day before Biogen announced a proposal.

If Biogen walks away from the bid, Facet shares are "going to tank. It would give back everything," Hamad Khorsand, an analyst with BWS Financial Inc., said in an interview on Monday.

Shares of Facet have traded from $5.86 to $50.00 over the past year.

Still, expectations are growing for a higher bid, Khorsand said.

The hostile tender offer is "how they have to approach it because management hasn't been really responsive," Khorsand said. "They've taken it to the investor base and are trying to see if they get a better response. But with the stock at $16.00 and some change, they're definitely saying 'you got to up the bid.'"

Biogen said Monday that it had no choice but to present its offer directly to investors after Facet's board rejected the proposal on Sept. 8.

Redwood City, Calif.-based Facet, which was formed in December as a spinoff from PDL BioPharma, Inc., has partnered with Biogen since 2005 on the development of drugs for cancer and multiple sclerosis.

Cambridge, Mass.-based Biogen's president and CEO, James C. Mullen, said in a statement on Monday that a combination would enable the clinical programs to have the best chance of reaching consumers.

The bid is 50 cents lower than an offer from Biogen in August that also was rejected by Facet's board. Biogen said earlier this month it lowered the bid because of Facet's agreement with Trubion Pharmaceuticals Inc. to jointly develop and market an experimental blood cancer drug.

Biogen's stock gained 89 cents, or 1.78%, to close at $50.89 on Monday.

Shares of Incline Village, Nev.-based PDL rose 6 cents, or 0.71%, to $8.48.

Seattle-based Trubion's stock added 43 cents, or 8.21%, to end at $5.67.

Mentioned in this article:

Biogen Idec Inc. Nasdaq: BIIB

Cisco Systems, Inc. Nasdaq: CSCO

Dell Inc. Nasdaq: DELL

Facet Biotech Corp. Nasdaq: FACT

Fairfax Financial Holdings Ltd. NYSE: FFH

International Business Machines Corp. NYSE: IBM

Odyssey Re Holdings Corp. NYSE: ORH

PDL BioPharma, Inc. Nasdaq: PDLI

Perot Systems Corp. NYSE: PER

Trubion Pharmaceuticals Inc. Nasdaq: TRBN

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