Chiron's Booster Shot
By Rich Duprey (TMF Cop)
April 4, 2006
In an effort to appease dissident shareholders and move forward with a merger that will allow it to work on a bird flu vaccine, Swiss pharmaceutical Novartis (NYSE: NVS) upped its buyout offer for California biotech Chiron (Nasdaq: CHIR) by $3.00 a share. The deal is now worth some $5.33 billion.
Novartis had originally bid $40 for the flu vaccine maker, but the offer was rejected by the board of directors as insufficient. After some gamesmanship -- where Novartis' CEO suggested he might be willing to walk away from the deal if the board remained intransigent -- the pharmaceutical upped its bid to $45 a share. Chiron's board found the new bid acceptable, but two large institutional shareholders, CAM North America and ValueAct Capital, threatened a revolt at the special shareholder meeting scheduled for later this month. Since those two shareholders held some 17% of the company's outstanding stock, and the merger would have to be approved by a majority of non-Novartis stockholders (Novartis owns 44% of Chiron), the possibility the deal would not be approved was very real.
Adding fuel to the growing bonfire of dissent was a report by the influential Institutional Shareholder Services; last week it issued a negative opinion of the proposed merger offer, saying the $45 a share bid did not reflect the potential for good news that could boost Chiron's value.
Completing the deal, and being able to manufacture a bird flu vaccine, was apparently enough to make Novartis blink again. It raised its bid by another 7%, or $200 million, to $48 a share, a move that has apparently appeased the dissidents, who have indicated they now support the merger. Novartis, though, was not taking any chances and amended the merger agreement to make it necessary only that a majority of shareholders approve the deal. With Novartis controlling nearly half the vote, the deal is virtually assured.
Vaccines will be a major driver for pharmaceuticals in the future, as witnessed by GlaxoSmithKline's (NYSE: GSK) buyout of ID Biomedical for $1.5 billion. According to Datamonitor, vaccines generated nearly $10 billion in sales in 2004, and that's expected to grow to as much as $42 billion by 2015. Yet all flu vaccines are currently manufactured using egg-based processes, something that might not be feasible to counteract the avian flu menace. That could provide momentum for cell-based vaccines such as those being developed by Crucell (Nasdaq: CRXL), which has partnered with Sanofi Aventis (NYSE: SNY), and Baxter International (NYSE: BAX). Chiron, however, did receive a $62.5 million government contract to manufacture a bird flu vaccine.
With an improved offer in place, dissident shareholders returned to the fold, and an impending pandemic looming on the horizon, Chiron and Novartis have immunized themselves to capitalize on the future.
Innoculate yourself with these related Foolish articles:
* Chiron Crisis Creates Investor Opportunity
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* Avian Flu Ruffling Feathers