King Appeals Directly To Alpharma Investors To Clear Buyout
This article was originally published in The Pink Sheet Daily
Executive Summary
New offer gives Alpharma a “go-shop” option to find a better price elsewhere.
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King Pharmaceuticals hopes to appeal directly to Alpharma shareholders with its increased, $37 per outstanding share, offer made Sept. 11. Bridgewater, N.J.-based Alpharma responded by urging shareholders not to act until its board can vet King's latest bid. King, in an effort to bolster its neuroscience business, offered to acquire Alpharma for $33 a share, about $1.4 billion total, in a private, then public offer, the latter made Aug. 21 (1 (Also see "King Makes Play For Alpharma To Build Specialty Pain Franchise" - Pink Sheet, 22 Aug, 2008.)). Alpharma rejected the offers, saying they undervalued the company. At the time, Bristol, Tenn.-based King indicated it preferred to work cooperatively in an effort to merge the two companies, but it was clear King would pursue a hostile takeover if necessary. In an Aug. 25 analysis of both firms, Cowen & Company's Ian Sanderson said acquiring Alpharma would be a smart move for King, likely resulting in a 15 percent to 20 percent upside in stock price for King in the 12 months after a deal was finalized. Sanderson agreed with Alpharma's assertion, however, that King's initial bids undervalued its true worth. He predicted that King would increase its bid by at least 10 percent to 15 percent - in fact, King's latest offer of $37 per share is 12-percent higher than its prior tender. "We believe other specialty and large-cap pharma companies with pain management franchises will be interested in Alpharma's pipeline of abuse-resistant opioids," Sanderson wrote. He named Abbott, Cephalon, Endo and Johnson & Johnson as possibilities. "We project than an auction process could yield an acquisition price 10-20 percent above [Alpharma's] current price, and possibly higher," he concluded. In August, King reported its second-quarter overall net revenue was down $150 million year over year, from $467 million in 2007 to $317 million in 2008. By contrast, Alpharma booked a 25-percent increase in revenue year over year during its second quarter. Sales of a top King product, Altace (ramipril), fell by about two-thirds due to launch of generic ACE inhibitor competition. Because of that and declining or stagnant sales for most of its other top products, as well as a fairly thin pipeline, King has eyed becoming a giant in the pain-therapy space, hoping to combine its Remoxy and Acurox with Alpharma's Embeda (2 (Also see "Third Time’s Not The Charm For King’s Pursuit of Alpharma" - Pink Sheet, 1 Sep, 2008.), p. 11). King's end-around play Frustrated by Alpharma's lack of interest in the King offer, King CEO Brian A. Markison wrote to Alpharma's shareholders on Sept. 11 expressing his disappointment over the inability to reach an agreement and offering the $37 a share tender. "Since early July of 2008, I have attempted to engage Alpharma's management and Board of Directors in a substantive discussion of the merits of a negotiated business combination between King and Alpharma, without result," he wrote. Markison added that King's new offer includes a willingness to undertake a merger agreement giving Alpharma a "go shop" option to find a better bid elsewhere "during an agreed-upon period of time." Alpharma declined this offer as well, he noted. King says its offer represents total equity value of approximately $1.6 billion and a 60 percent premium over Alpharma's share price during the 12 months ending Aug. 21, when King's takeover effort became public. During a presentation to the Thomas Weisel Partners conference Sept. 3, King Exec VP Corporate Affairs James Green said acquiring Alpharma would enable his company to "accelerate the expansion of our neuroscience business and create a stronger platform for future growth." Combining King's abuse-resistant oxycodone formulation - Remoxy, which has an FDA action date of Dec. 10 - with Alpharma's extended-release, abuse-deterrent morphine candidate, Embeda, would create a portfolio to tap the estimated 75 million Americans who suffer chronic or acute pain, Green said. FDA accepted Alpharma's June 30 NDA for Embeda for priority review earlier this month, establishing a Dec. 30 action date (3 (Also see "Alpharma Ups Ante With Phase III Embeda Proof" - Pink Sheet, 9 Sep, 2008.)). Alpharma to respond within 10 days Alpharma responded to King's latest move by urging its shareholders not to act until its board has time to review the new offer and formulate a position. The company pledged to make a recommendation on King's bid within 10 days following commencement of the tender offer. In its Sept. 11 release, Alpharma also noted it has received "expressions of interest ... from other parties" and that its board has begun the process of reviewing all strategic possibilities, including acquisition by King. -Joseph Haas ([email protected]) |