GlaxoSmithKline Submit Hostile HGS Bid Worth $2.60 Billion

GSK’s (GlaxoSmithKline’s) $2.60 billion bid to buy Human Genome Sciences (HGS) has taken a hostile direction, with GSK directly approaching shareholders with their previously-declined offer, instead of participating in HGS’ “strategic alternatives review”.

Last month, the board at Human Genome Sciences, which developed Benlysta (belimumab) with GSK, rejected GSK’s $13.00 per share offer, which signified an 81% premium to HGS’ stock price on April 18, the day prior to the bid being disclosed.  The bid was then rejected by the HGS board following consultation with financial and legal advisors and the board announced that they believed the bid “does not reflect the value inherent in HGS.”

Human Genome Sciences decided to hire Goldman Sachs and Credit Suisse to explore “strategic alternatives… including, but not limited to, a potential sale of the company.”  GSK was originally invited to take part in this process.  However, GSK have announced that they are not interested in that option.

Participation in Review ‘Unnecessary’

GSK commented that they decided to take the offer directly to Human Genome Sciences shareholders partly because “participation in the process is unnecessary as its offer is not conditioned on due diligence or financing and can be completed expeditiously.”  The UK drugs giant then added that “it is important for HGS shareholders to understand that GSK is committed to proceeding with its offer,” claiming that “there is clear strategic and financial logic to this combination.”

Additionally, GSK noted that as the four weeks that have passed since they originally made their offer on April 11, together with the additional 20 days the offer must remain open following its commencement, it “provides a reasonable amount of time for HGS to complete its review of alternatives.”

GlaxoSmithKline then went on to claim that their offer provides “immediate liquidity at a substantial premium while eliminating further exposure to the significant execution risk inherent in HGS achieving its future growth objectives” and takes into account the value of Benlysta, plus the value of two other partnered therapies – the late-stage cardiovascular drug darapladib and albiglutide, which is currently in Phase III for the treatment of type 2 diabetes.

“In respect of HGS’s desire to assure itself that GSK is not in possession of other material information regarding albiglutide or darapladib,” the company commented that they have provided the US biotech with “the limited additional clinical information available to GSK that can be shared consistent with regulatory and legal constraints.”

GlaxoSmithKline concluded commenting that they value the relationship the two firms have had, and “has clearly stated its preference to complete a transaction on a friendly basis in a timely fashion.” GSK also noted that they remain “willing to meet and review its offer with HGS at any time.”

Human Genome Sciences Respond Within 10 Days 

Purposely noting that the bid is identical to the amount the bid they have already rejected offered, Human Genome Sciences, whose shares have been near the $14.60 mark this week, announced that they will “carefully review and consider the offer” and make a recommendation within 10 business days of the tender offer being launched.  Regarding HGS’ strategic review, the firm noted that the process is still on-going.

Ana Nicholls, healthcare analyst at the Economist Intelligence Unit, commented that if HGS had been hoping for GSK to raise their offer, “then it will be disappointed.”  Nicholls believes that the proposal “is already fairly generous, given that HGS has been loss-making for the past two years.”

However, Human Genome Sciences may argue that GSK is just taking advantage of a share price which has fallen as a result of poor sales of Benlysta.  Although, Nicholls added that “a sustained rebound is far from a sure thing.”  She believes that while darapladib and albiglutide have potential, “they have still to get through final trials, and the markets they would be entering are crowded ones.”

GSK have today announced that they have commenced their tender offer to acquire all of the outstanding shares of Human Genome Sciences for US$13.00 per share in cash.  The tender offer and withdrawal rights are scheduled to expire at midnight (New York City time) on the 7th June this year unless the offer is extended.


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