Dow dividend cut no relief for Rohm; Cisco, VMware deal not in the cards; PharmaNet buyout a low risk

By Cristal Cody

Tupelo, Miss., Feb. 12 - Dow Chemical Co.'s plans to cut its dividend for the first time in nearly a century is not expected to matter in completing the $15.4 billion acquisition of Rohm & Haas Co., an analyst told Prospect News on Thursday.

In other action, Merck & Co., Inc. agreed to buy a portion of Insmed Inc.'s experimental drugs and a manufacturing plant for $130 million on Thursday. An analyst said in an interview that the deal probably would not lead to an additional sale of all of Insmed.

While VMware, Inc. has been getting attention as a potential Cisco Systems, Inc. takeover target, an analyst said Thursday that a deal is unlikely.

Also on Thursday, private equity investment fund JLL Partners Inc. launched its $5.00-a-share cash tender offer for PharmaNet Development Group Inc.

Meanwhile, stocks were mixed Thursday. The Dow Jones Industrial Average fell 6.77 points, or 0.09%, to 7,932.76.

The S&P 500 index gained 1.45 points, or 0.17%, to finish at 835.19, and the Nasdaq Composite index tacked on 11.21 points, or 0.73%, to close at 1,541.71.

Dow cuts dividend

While Dow announced the dividend cut to 15 cents from 42 cents on Thursday, the company fell flat in its attempt to disqualify Rohm & Haas attorneys in the lawsuit filed to force the merger.

The trial to close the $78.00-a-share buyout remains set for March 9 in Delaware.

The dividend is payable April 30 to shareholders of record on March 31.

"I don't think this will be the end-all with respect to the lawsuit," the analyst said. "The dividend is payable to shareholders in April, and the court case may be decided by then - so who knows what may happen to this dividend."

Dow has cited a failed Kuwaiti joint venture and the soured economy for holding off on completing the deal.

Shares of Rohm & Haas jumped $1.97, or 3.41%, to close at $59.75 on Thursday.

Dow shares closed unchanged at $10.04 in trading.

Insmed sells portion to Merck

Merck will receive several experimental medicines from Insmed that are in early and late-stage trials.

"This deal is significant enough in terms of milestones that Merck probably has all they would like, at least in the immediate near term," Robert Hazlett, an analyst with BMO Capital Markets, said of potential future transactions. "If this deal closes the way it's structured, Merck would potentially have the access to all it needs out of this."

Insmed will receive an initial $10 million for its lead generic biotech drugs and the remaining funds when the deal closes. The transaction is expected to close March 31.

The company, which had $2.4 million in cash as of Dec. 31 and a net cash burn of $1.2 million a month, said it will use the first payment to continue operations.

Insmed said it will use the total proceeds for continued drug development and may consider other options, including a cash distribution to shareholders.

"This transaction will transform and strengthen our balance sheet in a completely non-dilutive fashion, and provides us with substantial financial flexibility in a market where cash, especially for small biotech companies, is scarce," Geoffrey Allan, president and chief executive officer of Insmed, said in a statement.

Insmed shares gained 24 cents, or 54.55%, to close at 68 cents Thursday.

Merck shares lost 38 cents, or 1.28%, to close at $29.34.

Cisco, VMware combo questionable

Shares of VMware had jumped $1.65, or 6.77%, to $26.04 Wednesday on speculation of a buyout by Cisco.

Eyes were on Cisco's latest net cash balance of $22.7 billion as of Jan. 24.

Walter Pritchard, an analyst with Cowen and Co., said Thursday that the premise of an acquisition is valid, given Cisco's cash and interests in virtualization platforms, but a deal is unlikely.

Cisco owns about 2% of the outstanding shares of VMware, and VMware parent EMC Corp. holds 84% of the stock.

"We believe there are fundamental questions as to whether or not EMC wants to part with VMware," he said in a research note.

Pritchard said he does "not put much faith in the likelihood of a deal being consummated."

Shares of VMware closed unchanged Thursday at $26.04.

Cisco's stock rose 3 cents, or 0.19%, to $16.20 in trading Thursday.

PharmaNet sale on track

The nearly $100 million private buyout of PharmaNet is expected to clear antitrust reviews, an analyst told Prospect News.

"There's no regulatory hurdles," the analyst said. "The board and management are not viewing this as hostile. It's a very good price."

That it is - the stock closed at $1.34 on Feb. 3, the day before the deal was announced.

The $5.00-a-share tender offer expires on March 12.

The buyout will be financed by a $250 million equity commitment from JLL Partners.

Shares of PharmaNet on Thursday closed up 4 cents, or 0.82%, to $4.92.

Mentioned in this article:

Cisco Systems, Inc. Nasdaq: CSCO

Dow Chemical Co. NYSE: DOW

Insmed Inc. Nasdaq: INSM

Merck & Co., Inc. NYSE: MRK

PharmaNet Development Group Inc. Nasdaq: PDGI

Rohm & Haas Co. NYSE: ROH

VMware, Inc. NYSE: VMW

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