More comment.
Mr Keegan doesn't seem too bright; I'm not sure how cash can be of "dubious value", and looked at as a disguised rights issue, it's effectively at a premium...
Cambridge Antibody buys varsity rival OGS
By David Firn, Pharmaceuticals and Chemicals Correspondent FT.com, 11:30 GMT Jan 23, 2003
Cambridge Antibody Technology, the UK biotechnology company, is to acquire Oxford Glycosciences, in an all-share deal that values its smaller varsity rival at £110m ($178m).
The agreed all-share acquisition is the biggest deal in European biotechnology since Celltech acquired Chiroscience in 1999. It brings together two of the best funded UK companies to create a player with two approved drugs, and cash reserves of about £260m to develop new products.
The acquisition of lossmaking OGS brings CAT a second product, Zavesca, a treatment for a rare genetic disorder, but its other products are mostly at a very early stage in development.
Analysts expect Peter Chambre, CAT's recently appointed chief executive, to use some of the OGS's £120m cashpile to make further acquisitions.
The transaction creates a well-funded company with the critical mass needed to dominate the sector, but analysts said it did little to accelerate CAT's slow progress to profitability. With its first product, Humira, licensed to Abbott of the US for a royalty of about 4-5 per cent, CAT is not expected to turn a profit until it can launch more products.
David Aston, chief financial officer at CAT, said the enlarged group would become profitable in 2008, a year later than analysts had forecast, before the deal was announced.
Karl Keegan, analyst at Banc of America, said the acquisition could be a defining moment for the sector. But he said CAT needed to use the money it was acquiring wisely. "In terms of the sector - particularly in the UK - it may come to be a defining moment in that the much wanted M&A is occurring. But you could view the acquisition as a discounted rights issue," Mr Keegan said.
"CAT is issuing shares and getting cash and technology of dubious value," he added.
CAT said it would cut costs by about £10m in the first year after the acquisition by removing duplication in corporate overheads, R&D and real estate.
Further savings would come from a rationalisation of the R&D portfolio to focus resources on the most promising products.
David Ebsworth, who took over at OGS last year, has been offered a board role at CAT, overseeing integration of his company. However, the management of the expanded group will be dominated by CAT's existing team.
Shares in OGS rose 23 per cent to 187-1/2p in early trade in London. CAT shares fell nearly 5 per cent, or 25-1/4p, to 513-3/4p.
The owners of OGS will receive 0.3620 new CAT shares for each OGS share. Following the acquisition, CAT shareholders will own 64.3 percent of OGS. The offer - equivalent to 190p a share - is a 28.2 per cent premium to OGS's closing price on Wednesday, before the merger was announced, but a discount to its cash pile estimated to be £120m.
Investors who have held OGS shares since it floated at 275p face a loss of about 30 per cent on their investment, but analysts said the CAT deal was likely to be broadly welcomed by investors. |
