HGS enacts 'poison pill' defense against GSK acquisition

ROCKVILLE, Md.—After reviewing the offer, Human GenomeSciences, Inc. (HGS) has announced that its board of directors has unanimouslydetermined GlaxoSmithKline's (GSK) unsolicited tender offer to be inadequate,to undervalue the company and to not be "in the best interests of HGS and itsstockholders."

"Our board of directors has concluded unanimously that theGSK offer is inadequate and does not reflect the value inherent in Human GenomeSciences," H. Thomas Watkins, president and CEO of HGS, said in a pressrelease. "We remain very confident in the commercial and therapeutic potentialof BENLYSTA. We believe it will ultimately transform the standard of care forSLE as the first drug designed to treat the underlying disease of SLE ratherthan individual symptoms. We also believe HGS holds great potential beyondBENLYSTA for SLE, including potential new indications for BENLYSTA and a numberof emerging mid- and early-stage products in our internal pipeline. In the GSKclinical pipeline, we have substantial financial rights to darapladib, which ifsuccessful could address a potential population of more than 40 millionpatients in the U.S., and to albiglutide, a potential treatment for type 2diabetes, which affects 25 million patients in the U.S."

"The HGS Board of Directors has determined that the GSKoffer is not in the best interests of our stockholders and recommends that theynot tender shares to GSK," Watkins added.

HGS first turned down GSK's offer of $13 per share in cash,for an aggregate total of approximately $2.6 billion, on April 19, followingGSK's unsolicited proposal. The price represents an 81 percent premium overHGS' closing share price on April 18, the day before the confirmation of theoffer affected the company's stock, but HGS stated that the proposal did notreflect the company's inherent value. HGS then went on to note that it would beconducting a strategic alternatives review, a process to which GSK was invitedand for which HGS requested additional information from GSK on products inGSK's pipelines that both companies have financial rights to. GSK then took theoffer public, commencing its tender offer at the same price on May 10. GSK alsonoted that it would not take part in the strategic alternatives review, callingit unnecessary as its offer is not contingent upon due diligence.

In conjunction with its dismissal of GSK's offer, HGS hasalso adopted a short-term stockholder rights plan, a "poison pill" defenseagainst GSK attempted hostile takeover. The company declared a dividend of oneshare purchase right for each share of its common stock held on record as ofthe end of business on May 29. The Rights Plan has a one-year term and isintended to allow HGS "to fully engage in its strategic review process and as ameans to protect the long-term interests of the company's stockholders." Therights represents the ability to purchase one one-hundredth of a share of newSeries A Junior Participating Preferred Stock at $37.50 per right, and onceexercisable, they allow shareholders to purchase HGS common stock with a marketvalue of twice the exercise priced of the rights.

Though it did not release any specific statements inresponse to the poison pill defense, GSK did post a press release stating thatthe company believes its offer "represents full and fair value and is in thebest interests of both companies' shareholders … For HGS shareholders, itprovides immediate liquidity at a substantial premium while eliminating furtherexposure to the significant execution risk inherent in HGS achieving its futuregrowth objectives."

GSK plans to proceed with the tender offer, the pressrelease noted, and would prefer "to complete a transaction on a friendly basisin a timely fashion." GSK's tender offer expires June 7 at midnight.