The long and well-established relationship between Human Genome Sciences (HGSI) and GlaxoSmithKline (GSK) would lead one to believe that the partnership between the two companies-- which is focused chiefly on the lupus drug Benlysta-- is one based on cooperation, loyalty and mutual respect. Unfortunately, that picture-perfect vision rarely exists in the world of big business.
An eventual marriage between the two companies has long been speculated, even when shares of HGSI were approaching their 52-week highs of nearly thirty bucks, but it wasn't until April of this year - when shares of HGSI had been crushed by a down market and slumping Benlysta sales - that an offer actually materialized. The offer rolled in at $13 per share, a roughly $2.6 billion acquisition deal that was swiftly rejected by the Human Genome management team.
What came next was far from the worthwhile discussion and negotiation phase that many might have predicted, rather Glaxo quickly took its bid hostile, and again met resistance from Human Genome. In response to the hostile bid, Human Genome management implemented a "poison pill" that would make it nearly impossible for Glaxo to take control of the company without the board voting in favor of any deal. In turn, Glaxo looked to replace Human Genome's current board with members of its own choosing, but it's doubtful that Glaxo will ever mount that kind of support from HGSI shareholders, many of who are still hanging around from the days of $20-plus.
The cat and mouse game is not likely to end any time soon, barring a surprise final offer from Glaxo, but it is safe to assume that a deal is eventually going to get done. Since Glaxo is already heavily invested in HGSI and is due significant revenue streams on any HGSI product successes, there's little chance of another company swooping in to outbid Glaxo and take control of Human Genome for itself. That makes this a story to which we already know the ending -- it may be fun to watch the scenes play out, and there may be some drama and flair building to try and make this one exciting, but any real suspense is non-existent.
For investors, the largest percentage gains have most likely already been had on the run from seven to fourteen dollars, when the buyout offer first hit the wires. There's a slim chance that a final deal could approach the twenty dollar mark, if only because large pharma - like Pfizer (PFE), for example - is on the prowl for companies with solid pipeline potential, but given the lack of expected competition to scoop up HGSI, I wouldn't count on it.
More likely Glaxo will add a couple or three bucks to the offer price on a per share basis and the two entities will sail into the limelight together. Or, if the two continue to bicker like school girls, then Human Genome may just decide to move forward on its own - a risky proposition since there are no assurances that Benlysta will ever rebound from its rough start. If that's the case, then investors are likely to see another drop to below ten bucks before any potential rebound could take shape.
In the meantime, you'd think that these two companies were heading for a divorce, not a consummation.