Will CAT sweeten the deal - or will they walk away if necessary (as they did with the - admittedly less significant - DRC deal) ?
Share slide casts doubts over predator CAT
By Mark Potter
LONDON, Jan 30 (Reuters) - A steep fall in Cambridge Antibody Technology Plc (CAT) shares has cast doubt over the British biotech firm's agreed all-stock bid for rival Oxford GlycoSciences , analysts and investors said on Thursday.
CAT's shares have slumped as much as 14 percent since the deal was announced last Thursday, cutting the value of its bid by about 15 million pounds ($24.6 million) to 95 ADVERTISEMENT
million.
The original bid already valued Oxford GlycoSciences (LSE: OGS.L - news) (OGS) below its cash reserves, which totalled 136.4 million pounds at the end of December.
"We'll be interested to hear why OGS thinks this is a better deal than simply returning cash to us," said John Wilson, a fund manager at Standard Life Investments and top-ten OGS investor.
Since the bursting of the technology bubble, it is not unusual for a biotech firm to have a market value below its cash reserves, as investors have ditched the promise of future riches in favour of companies offering returns in the here and now.
But Sam Fazeli, an analyst at Nomura, thinks the gap between the value of CAT's bid and OGS's cash pile has grown too far.
"If OGS shareholders were to ask the company to switch off the lights and close up shop, even assuming a 15 million pound cost, they should get about 216 pence per share back," he wrote in a research note. This compares with CAT's bid of 169p, based on its closing share price of 468p on Wednesday.
Fazeli said the slide in CAT's shares was a sign investors were unhappy with deal, which ties together two cash-rich firm but does little to boost either's weak drug pipelines.
At 1435 GMT, CAT shares were up two percent at 477-1/2p in a wider UK market up 2.5 percent. OGS shares were flat at 173p.
June Scott, a fund manager at Sagitta Asset Management, agreed OGS shareholders would feel uncomfortable about the drop in the value of CAT's bid.
"If I was an OGS shareholder, I'd certainly be hoping for a better offer, either from CAT or someone else," she said.
But not all investors were worried.
GOOD FEEDBACK
Bill Blair at Scottish Widows noted CAT's bid still offered a premium to OGS's share price of 152.5p on the day before the deal was announced, and that if the deal fell through, OGS would simply be left to continue eating into its cash reserves.
He said closing down OGS would abandon its pioneering research into proteins, while merging it with CAT would create a better opportunity for this research to bear fruit.
"CAT and OGS will have a much better chance of making it as a biopharmaceutical company together than they would independently," he said. Scottish Widows owns a small stake in OGS.
Richard Parkes, an analyst at ING, agreed.
"Yes, there's a short-term case for saying OGS is selling itself short. But in the longer term it will create a stronger business and I think that's the view most (shareholders) will take," he said.
A spokeswoman for OGS said it continued to back CAT's bid.
CAT declined to comment on whether it might improve its offer, but a spokesman said it was getting good feedback from OGS shareholders it had met so far.
At the time of the deal, CAT said it had non-binding letters of support from OGS's two biggest shareholders, Invesco Asset Management Ltd and Fidelity Investments International Ltd, accounting for 29 percent of OGS shares. It needs the backing of 75 percent of OGS shareholders who vote on the deal.
Fidelity declined to comment on the deal, while Invesco was not immediately available... |
