Spread widens on Wyeth stock; Biogen jumps on buyout talk; Cubist makes difficult takeover target

By Cristal Cody

Tupelo, Miss., April 7 - Although Pfizer Inc. released details of how the company will be organized after the acquisition of Wyeth on Tuesday, shares continue to trade at a wide spread to the offer.

The drug industry is ripe with consolidation, and shares of Biogen Idec Inc. jumped on Tuesday on takeover rumors.

In other potential pharmaceutical deals, shares of Cubist Pharmaceuticals Inc. remain on the rise after Friday's 18.00% price spike on speculation that Swiss drug maker Novartis AG will offer $26.00 a share - but one analyst sees it as a long shot.

On Wall Street, stocks slid for the second day. The Dow Jones Industrial Average lost 186.29 points, or 2.34%, to close at 7,789.56.

The Standard & Poor's 500 index fell 19.93 points, or 2.39%, to 815.55, while the Nasdaq Composite index dropped 45.10 points, or 2.81%, to 1,561.61.

Pfizer, Wyeth regulatory issues

Wyeth shares lost 31 cents, or 0.72%, to close at $42.45 on Tuesday.

Pfizer's stock fell 20 cents, or 1.46%, to $13.51.

Pfizer made its $68 billion cash-and-stock offer for Madison, N.J.-based Wyeth in January at a then-nearly 15% premium to the stock's trading price.

The offer, then valued at $50.19 a share, includes $33.00 in cash and 0.985 of a share of Pfizer stock.

"It's unusual that the spread is as wide as it is," Sachin Shah, a senior special situations analyst with ICAP Corporates LLC, said in an interview.

Shah said the spread probably is due to antitrust concerns, financing questions and the fact that closing is months away.

New York-based Pfizer said last month it had received a second regulatory request for information on the merger. Analysts have cited the company's animal-health division for potential divesture.

On Tuesday, Pfizer said the new pharmaceutical company will be formed under two research organizations and announced key leadership staff.

"Having our organizational structure in place is critical to the combined company being operational on Day One, and the appointment of these leaders will accelerate our ability to do so," Pfizer chief financial officer Frank D'Amelio said in a statement. "We have made substantial progress in a short period of time, particularly in financing, as well as other requirements for closing."

Last month, Pfizer raised funds for the acquisition with a $13.5 billion bond sale.

The deal also includes funding from $22.5 billion in bank financing through a bridge loan with five investment banks.

Shah said that "if the banking industry has another blow, the spread on deals, especially the cash-rich deals the size of Wyeth/Pfizer, is going to significantly widen."

Pfizer and Wyeth expect the transaction to close at the end of the third quarter or during the fourth quarter.

"The timing is uncertain, but the end of October seems reasonable," Shah said.

Another analyst on Monday also pegged October as the closing date.

"We have assumed a 5.5-month review under the second request and a 4.2-month EU Competition review," the analyst said.

Biogen shares up

Biogen shares gained $2.46, or 4.96%, to close at $52.09 on Tuesday.

Analysts say the company is a major potential takeover target, with some estimating a buyout price of $76.00 a share.

The Cambridge, Mass.-based biotechnology company also is under attack for a second time by shareholder and billionaire investor Carl Icahn, who plans to nominate new directors to the board.

One analyst has given the company a two-thirds probability of a takeover this year.

Cubist takeover long shot

Cubist Pharmaceuticals' shares closed up 11 cents, or 0.62%, at $17.98 on Tuesday.

Shares jumped 18.00% on Friday to close at $19.45 on rumors of a bid by Novartis. The stock has traded from $13.81 to $28.74 over the past year.

"While we believe that the strategic rationale for a bid by Novartis is strong, we also believe that there is a large risk that no bid will come to fruition," an analyst said Monday.

A plus for a potential deal is the fact that Basel, Switzerland-based Novartis is Cubist's European partner for antibiotic drug Cubicin.

Also, "Novartis has made two prior acquisitions of companies with potentially competitive products to Cubist's Cubicin. One of these proved to be ineffective, and the other is not expected to gain regulatory approval until 2012," the analyst said.

But major deterrents for a deal includes Lexington, Mass.-based Cubist's hostile takeover defenses of a poison pill and a staggered board as well as a Food and Drug Administration application submitted by Teva Pharmaceuticals Industries Ltd. in February to produce a generic version of Cubicin.

"We would not take positions on Cubist prior to the announcement of a firm bid," the analyst said.

Novartis shares gained 10 cents, or 0.27%, to close at $37.31.

Shares of Israeli generic drug maker Teva fell 34 cents, or 0.75%, to close at $45.15.

Mentioned in this article:

Biogen Idec Inc. Nasdaq: BIIB

Cubist Pharmaceuticals Inc. Nasdaq: CBST

Novartis AG NYSE: NVS

Pfizer Inc. NYSE: PFE

Teva Pharmaceuticals Industries Ltd. Nasdaq: TEVA

Wyeth NYSE: WYE

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.