Alpharma: ‘No thanks’ to $1.4 billion offer

King Pharmaceuticals makes unsolicited $33 per share bid for specialty pharma company

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BRISTOL, Tenn.—King Pharmaceuticals Inc. on Aug. 22 made an unsolicited, all-cash offer for the outstanding shares of common stock of Bridgewater, N.J.-based specialty drug maker Alpharma Inc. totaling $1.4 billion, a proposal that King Chairman, President and CEO Brian A. Markison has called "too compelling to ignore."

However, Alpharma has ignored it three times now, twice in private communications and now publicly with King's announcement that it might go hostile and take the offer straight to shareholders.

One of the sticking points for Alpharma is that this latest offer of $33 per share in the public announcement is exactly the same as the amount offered in the two previous private offers to acquire the company. King's management argues that the price is a fair one, given that it is a 37 percent premium over the closing price of Alpharma common stock on Aug. 21, the last trading day prior to public disclosure of King's proposal; a 49 percent premium over the closing price of Alpharma common stock on Aug. 4, the date of King's initial written offer to Alpharma; and a premium of about 38 percent over Alpharma's average closing price during the one-, three- and twelve-month periods ended Aug. 21.

In a letter to King, Alpharma CEO Dean Mitchell wrote that the proposal does not reflect his company's "inherent value" and also brought up another sticking point for Alpharma, that King had "declined to enter into a customary confidentiality agreement that would enable us to have an orderly evaluation process and ensure that we are able to protect the long-term interests of our shareholders." Mitchell maintains that confidentiality would allow Alpharma to provide King with non-public information that would demonstrate that $33 a share undervalues the company.

Alpharma shares surged more than 40 percent the day of King's public announcement, suggesting the market is on Alpharma's side regarding the company's value.

Although Alpharma hasn't taken King's bait yet, Cowen & Co. analyst Ian Sanderson has called King's decision to pursue Alpharma a "very good strategic move" as a successful acquisition would make King a dominant player in the pain management business quite quickly.

King's Markison notes that it was just a year ago that his company redefined its strategic focus with an emphasis on specialty markets, particularly neuroscience, hospitals and acute care, and he anticipates synergies of $50 million to $70 million in the second year following the close of an Alpharma acquisition as well as helping to diversify King. Also, such an acquisition would provide King with the sales force it needs in anticipation of launching the drug Remoxy in 2009.

Jefferies & Co. analyst Dave Windley has said it is likely the offer will ultimately rise to between $36 and $38 per share, adding that Endo Pharmaceuticals and Cephalon may also be interested in acquiring Alpharma—though he thinks King would be the better suitor for Alpharma to go with of the three.

RBC Capital Markets analyst Ken Trbovich adds Johnson & Johnson to the list of potential suitors and agrees that the $33-per-share price is unlikely to be the final word, noting that what the offer does is put Alpharma in play, whether it wants to be or not, and may merely serve to draw out other interested parties to start bidding on the company. DDN

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