Amylin Pharmaceuticals: Unless A Bidding War Is Ignited, Tender

| About: Bristol-Myers Squibb (BMY)

Shareholders of Amylin Pharmaceuticals (AMLN) are the absolute winners on Wall Street today after the company reportedly rejected an unsolicited $3.5 billion offer last month from pharmaceutical giant Bristol-Myers Squibb. In a reaction to the news, shares ended the day 54% higher to close at $23.44

The offer
According to two unnamed sources, Bristol-Myers Squibb (NYSE:BMY) made an unsolicited offer for Amylin for $3.5 billion, or $22 per share. The offer represents a 43% premium to Yesterday's close of $15.39
Apparently the board of directors of Amylin rejected the offer of Bristol-Myers about one month ago, and there have been no discussions between both companies ever since.

Amylin Pharmaceuticals
The pharmaceutical company is known from its diabetes drug Bydureon for which it received FDA approval as recent as January this year. Analysts point out that the new medicine could generate annual revenues of up to $1 billion per year. Shares have suffered in recent years as its drugs revenue are on the decline and the financial position of the company is slowly deteriorating.

Bristol-Myers Squibb
Pharmacy giant Bristol-Myers focuses on Alzheimer, obesity, HIV and cancer drugs. The company has engaged in a "string of pearls" acquisition strategy. Since 2007 the company made 19 acquisitions of which a possible acquisition of Amylin Pharmaceuticals would be the largest acquisition in these series.

The company has actively tried to acquire new promising pharmaceutical and biotechnological companies as its patents are expiring in the coming years, and it lacks the pipeline within the company to fill up the gap.
In its latest quarterly filing Bristol-Myers showed a cash balance of $11.5 billion with a mere $5.4 billion in long term debt.

Other bidders
According to analysts at Deutsche Bank, the company could be worth $31 per share, based on expected synergies. However, analysts point out that Bristol-Myers Squibb has financial discipline regarding its acquisition strategy.

Analysts point out that other large companies might be interested in Amylin which last November ended its collaboration with Eli Lilly & Co (NYSE:LLY) to distribute drugs outside the US.

The valuation of a pharmaceutical company is always a tricky point. Amylin has shown years of negative revenue growth and losses as its current medicines "BYETTA" and "SYMLIN" are on the decline. 2012 should be a revival year with the introduction of "BYDUREON" which could generate about $1 billion in annual revenues according to some analysts.

Years of massive investments in research & development have however created a lot of intellectual property within the firm.

Investment thesis
Shareholders and speculators are betting on a possible bidding war. The company's shares trade about a 6.5% premium above the bid from Bristol-Myers as the board of directors of Amylin rejected the unsolicited offer.
On a stand-alone basis the company has a difficult future with over $1.5 billion in long term debt and its cash levels running low.

If "BYDUREON" is going to be a great success and is the kick-start of a long term revival of the company, shareholders are better off if the company remains independent.

However, if the introduction of the new drug comes as a disappointment and financial difficult times remain on the horizon, shareholders should applaud the opportunity that Bristol-Myers is providing them. In such a case shareholders should tender their shares at a nice premium despite the fact that shares traded in the mid-forties just a couple of years ago.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.