Human Genome Sciences turns down GSK's $2.6 billion offer

Company says offer fails to reflect its inherent value, begins strategic review of alternatives

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ROCKVILLE, Md.—Human Genome Sciences, Inc. (HGS) announcedthat it had received an unsolicited proposal from GlaxoSmithKline plc (GSK) toacquire HGS for $13 per share in cash, an aggregate price of approximately $2.6billion, an offer that the company's board of directors has determined fails toreflect HGS' inherent value. The offer, which was formally presented to HGS inan April 11 letter from Sir Andrew Witty, CEO of GSK, represents an 81 percentpremium over HGS' closing share price on April 18.
In response to the offer, the board of directors hasauthorized the exploration of strategic alternatives for the company,including, but not limited to, a potential sale. Goldman, Sachs & Co. andCredit Suisse Securities (USA) LLC have been brought on as financial advisorsduring this process, with Skadden, Arps, Slate, Meagher & Flom LLP and DLAPiper LLP (US) brought on as HGS' legal counsel. HGS noted in a press releasethat it "does not intend to discuss the status of its evaluation unless and untila specific transaction has been approved."
GSK has been invited to take part in the process, with HGSrequesting additional information regarding products in GSK's pipeline that HGShas significant financial rights to. The two companies are not strangers to eachother, having worked together on Benlysta, the lupus drug, as well as twolate-stage compounds for the treatment of diabetes and artery hardening.
"Having worked together with Human Genome Sciences fornearly 20 years, we believe there is clear strategic and financial logic tothis combination for both companies and our respective shareholders – and thatnow is the appropriate time in the evolution of our relationship for our twocompanies to combine," Witty said in a press release. "This offer reflectsfull and fair value for Human Genome Sciences and the synergies inherent inthis combination. It also eliminates substantial execution risk for HumanGenome Sciences shareholders and delivers immediate and certain value that issuperior to what we believe Human Genome Sciences can reasonably expect tocreate as a standalone company."
Witty noted that the company expects to achieve costsynergies of at least $200 million by 2015 and expects the acquisition of HGSwould be earnings-accretive in 2013.
The company was "disappointed" by HGS' rejection of theoffer, but "confident that our offer is in the best interest of shareholders ofboth companies."
In a Bloomberg article, JMP Securities analyst Liisa Baykosaid the offer was a "good deal," noting that HGS is "not that appealing toanyone other than Glaxo." Though Bayko said she was "happy" when she saw the$13 per share offer, she added that "I could see $15 a share." Bayko has anoutperform rating on HGS.
"GSK is uniquely positioned to realize the full value ofBenlysta, albiglutide, darapladib and Human Genome Sciences' other assets forthe benefit of physicians, patients and shareholders," said Witty. "Throughcomplete ownership, we can simplify and optimize R&D, commercial andmanufacturing operations to advance these products most effectively andefficiently while securing the full potential long-term value of the assets."
GSK has brought on Lazard and Morgan Stanley as itsfinancial advisors for this transaction, and Cleary Gottlieb Steen & Hamiltonand Wachtell, Lipton, Rosen & Katz as its legal advisors.

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