'Deals' Archive
Perhaps Martha Stewart should have held onto that ImClone stock a little longer. Not only would she have avoided jail time, but she might have earned a little more bang for her buck. Bristol-Myers Squibb’s $4.5 billion bid to acquire the 83% of ImClone it doesn’t already own values the company’s shares at $60 a pop (ironically, the same price that triggered Martha’s stock ditch in 2001). But speculation over the deal has already raised the stock’s price tag above that bar and ImClone has hinted that it may seek a higher offer.
BMS’s unsolicited takeover attempt marks the second large biotech takeover attempt by a big-name pharmaceutical firm this summer (the first was Roche’s bid for Genentech) and is part of the larger and seemingly intensifying trend of the pharma industry’s shift towards biopharmaceuticals. (It’s a sign of the times, but also of dwindling revenues from traditional drugs.)
What is BMS hoping to gain through the purchase? While ImClone only has one commercial product (cancer treatment Erbitux, which is approved to treat colorectal, head, and neck cancers), that single product brings in over $1 billion in annual revenue. ImClone also has a pipeline of similar antibody-based cancer drugs, and it is pursuing additional indications for Erbitux. If the company’s development candidates make it to market ImClone will also hold a corner on treatments for lung, pancreatic, breast, prostate, and ovarian cancers.
So despite a history laden with patent disputes, management shake-ups, and stock-trading scandals, ImClone represents an opportunity for growth to the struggling BMS. Whether ImClone accepts the offer is another question. The biotech indicates that it may decide on another course to maximize shareholder value, such as the separation of its Erbitux and development operations into two companies. The deal’s success will also largely depend on the opinion of ImClone chairman Carl Icahn, the formidable investor who has already voiced his doubts on the BMS offer.
Friday’s annual meeting of Yahoo! shareholders will be anticlimactic, thanks to a deal worked out last week between the company and activist investor Carl Icahn, who owns about 5% of Yahoo!’s shares.
Icahn called off his proxy challenge, striking a settlement agreement with Yahoo!’s board and management. Basically, one incumbent director will leave the board, the board will expand from nine to 11 seats, and two of the three vacant seats will be filled by Icahn and former AOL CEO Jon Miller, with Icahn to name a third director. (Please let it be Mark Cuban!)
Icahn briefly blogged on the settlement, which is so 21st century, of this aborted proxy battle.
What brought about this rapprochement? As others have noted, one event that may have tipped the balance and caused Icahn to seek a deal was the declaration by Legg Mason the week before that it planned to vote its shares in favor of the management nominees at the Yahoo! annual meeting. Bill Miller, the manager of Legg Mason’s flagship Value Trust fund, loudly criticized Yahoo!’s board and management for scaring off Microsoft, yet decided in the end to go with the devil he knew. Icahn reportedly saw Yahoo!’s institutional investors circling the wagons around the incumbent board and management and apparently decided against suffering a public defeat.
For their part, the Yahoos in Sunnyvale, California, knew they were about to report mediocre results from their second quarter, so they also had an impetus to come to an arrangement with the barbarians at their gate.
This sally by Icahn is looking like his crusade against Motorola — he buys a small but significant stake in the target company, blusters about the sins of the board and management, pulls together a proxy bid, and then calls it off in exchange for seats on the board for him and some cronies. It remains to be seen whether the Yahoo! episode will play out like Motorola did, with the CEO banished and the company broken up.
Meanwhile, the Evil Empire in Redmond, Washington — excuse me, I mean Microsoft — is officially washing its hands of any interest in all or part of Yahoo!, and turning to its own knitting to defeat Google. Knit one, Perl two? (A little coding humor.)
Yahoo!’s not out of the woods, with Congress scrutinizing its search advertising deal with Google and some shareholders still mad about losing out on $33 a share in cold, hard cash from Microsoft. (The stock closed Monday at $20 and change.) Not much yodeling going on at Yahoo! HQ these days.
The drumbeat of bad news continues for Wachovia, the fourth largest bank in the US. New CEO Bob Steel, the former undersecretary of the US Treasury who joined the company two weeks ago, certainly has his work cut out for him. The company announced Tuesday that it posted losses of nearly $9 billion in the second quarter of 2008, wrote off some $6 billion in assets, set aside more than $5.5 billion to cover future losses, is cutting dividends by 90%, and is eliminating approximately 10,000 jobs, including the layoffs of more than 6,300 employees.
At the crux of Wachovia’s troubles are so-called Pick-A-Pay mortgages, which allow borrowers to choose one of four monthly payment options. The bulk of these loans, most of them acquired when Wachovia bought Golden West Financial in 2006, are secured by homes in the hard-hit Florida and California real estate markets. The default rate of Wachovia’s $122 billion worth of Pick-A-Pay loans is hovering around 6%, and the company says that figure could balloon to 12% by 2009. (The national average for all mortgage defaults is currently around 1%.)
Wachovia has already raised more than $8 billion in capital from investors in 2008 alone, but may also be compelled to divest some of its operations in order to bring in more money. The most obvious candidate to be sold, according to some analysts, is the company’s Wachovia Securities subsidiary. It is perhaps Wachovia’s most successful business, though it has seen its assets under management dwindle by some 10% since its acquisition of A.G. Edwards last year. What’s more, Wachovia Securities’ St. Louis headquarters were raided last week by Missouri state regulators seeking information on the unit’s sales, pricing, and marketing of auction-rate securities after the market for the arcane financial instruments collapsed in February. [UPDATE: Please see the comment from Wachovia spokesperson Teresa Doughery regarding the state's actions.]
For its part, Wachovia is determined to weather the storm. Still, JPMorgan Chase is mentioned as a possible buyer of Wachovia Securities, if not all of Wachovia.
There’s a lot of speculation circulating about whether leading biotechnology firm Genentech will accept pharmaceutical giant Roche’s $43.7 billion takeover bid, the largest pharma/biotech merger price tag in several years.
The offer came as a surprise for Genentech, which has maintained a unique culture despite Roche’s controlling ownership stake. If Roche’s offer is accepted, the pharmaceutical giant says that it wants to keep Genentech independent so as not to squelch its innovative atmosphere. I imagine that Genentech executives and employees are wondering whether this goal is realistic though, especially since Roche has also announced its intention to integrate some US functions to cut costs.
Also at issue is the popular opinion that the offer is undervalued, only giving a 9% premium over Genentech’s stock value. Some analysts and investors are betting that Roche will have to up its offer before Genentech will commit, while others feel that Roche will use its advantage as majority shareholder to keep the price down.
Roche has thus far been satisfied with its controlling interest in Genentech, which has allowed it to reap profits from the division while avoiding management duties. The shift in strategy is less of a surprise, however, when you consider current competitive and consolidation trends in the pharmaceutical/generic/biotech industries, as well as the rise of foreign investments in US assets.
Roche itself has made several acquisitions in its quest to remain in the top ranks of drug companies, especially in the areas of biotechnology and diagnostics. (It also recently bumped up its stake in another majority-owned subsidiary, Japan’s Chugai Pharmaceutical.) Like many other pharma companies, Roche is looking to biotechnology firms to bolster its product offerings in the face of generic competition. Generic firms are also joining forces to get ahead of the game.
Though Roche will probably have to raise the stakes, it’s highly likely that Genentech will eventually end up taking the bait in this situation, if for no other reason than to secure its position in the increasingly challenging marketplace. However, let’s not completely discount that the California company may yet fight for its (partial) freedom with San Francisco flair.
We have this idea that the US economy is based on the free market system. The SEC’s new rule against naked short selling for certain companies and entities sure puts paid to that belief.
In short sales, an investor borrows shares of a company, sells them, and hopes the stock price later drops before he has to pay back the shares. It’s a classic instance of selling high, buying low.
In naked short selling, the investor doesn’t borrow the stock first. Less risk, so more reward — if the stock does fall as expected.
The rule has already raised a chorus of complaints from financial services firms that aren’t on the safe list. It also is probably not the right way to restore stability to the market. Granted, the horse is already out of that barn, but the best way the SEC and the Fed could have stabilized the market was to have put the brakes on the bubble in the first place. But oh no — we have a free market, right? No market interference here.
Gretchen Morgenson of The New York Times has a trenchant article on just this topic. She writes:
HERE is a question: Might not the routs, which inevitably follow the manias, be less painful if things were not allowed to get wild and crazy on the upside? Might not the American people be better off with regulators who curb market enthusiasm — whether in the form of errant lending or voracious, ill-considered deal making — when it reaches manic levels, to protect against the free fall, and the bailouts, that ensue?
Since the Fed has no problem with regulating some of the markets some of the time with rules that only apply to certain companies and certain investors, why not drop the pretense of the free market completely and create different regulations that are designed to do exactly what Morgenson suggests — regulate on the upside too?
If that is unpalatable, then when a Bear Stearns, a Lehman, or a Freddie and a Fannie look like they are failing, let the free market take its course.