Bristol Myers Squibb (BMY) and AstraZeneca (AZN) are all set to buy and jointly develop Amylin Pharmaceuticals (AMLN). Meanwhile, AstraZeneca and Merck (MRK) have repaired and continued their longstanding relationship, and GlaxoSmithKline (GSK) continues to fight for the acquisition of Human Genome Sciences (HGSI). But what, exactly, do these real and potential partnerships and acquisitions mean for these stocks, and what are the ramifications for stockholders?
The Bristol-Myers Squibb/AstraZeneca purchase of Amylin appears to be going through without a hitch. The acquisition has been "unanimously approved" by the Bristol board of directors as well as the Amylin board of directors. In addition they have unanimously recommended that stockholders in Amylin tender their shares to the tender offer. AstraZeneca's role only comes into play once the acquisition has been finalized between Bristol and Amylin. Bristol will acquire Amylin for $31 per share in cash, pursuant to a cash tender offer and second step merger, or an aggregate purchase price of approximately $5.3 billion. In addition to this, Bristol will be responsible for paying a contractual obligation to Eli Lilly (LLY), which will cost the company in the region of $1.7 billion. In total, then, Bristol will pay in the region of $7 billion to acquire Amylin.
The partnership between Bristol and AstraZeneca is one of the partnerships that I feel is a good move for both companies. The two companies are already collaborators in terms of their diabetes alliance. As a result of the acquisition of Amylin, AstraZeneca will be liable for $3.4 billion in cash paid to Amylin. AstraZeneca and Bristol will jointly market Amylin products and losses and profits will be shared equally between the two companies, which means that it is in each of their best interests to work for the benefit of the other. And, for an additional price of $135 million paid to Bristol, AstraZeneca can have equal governance rights. As Bristol and AstraZeneca have already set themselves up as potential leaders in the fight against diabetes, the joint development and marketing of Amylin's products is a great move.
Following the news, Bristol Myers Squibb climbed by over 2%. It's now trading for just under $35, near its 52 week high and there's a strong possibility it breaks that ceiling soon. AstraZeneca is on the higher side of its 52 week range too, though not as close as Bristol Myers Squibb. AstraZeneca is, however, up more than 10% in the last month and is finally back up to the level it began 2012 at.
GlaxoSmithKline and Human Genome Sciences are in a similar position. They have a pre-existing alliance or partnership going for them. However, instead of an amicable joining of forces, GlaxoSmithKline persists in its hostile takeover bid to acquire Human Genome Sciences, an attempt that Human Genome Sciences has thwarted time and time again, rejecting every proposal that GlaxoSmithKline has thrown at it.
In most recent news, GlaxoSmithKline once again extended its $2.6 billion offer to acquire its partner. Human Genome Sciences rejected the offer again and has stated that GlaxoSmithKline needs to make a higher offer. But GlaxoSmithKline has no interest at all in improving its offer for its smaller partner. Unlike the deal between Amylin and Bristol Myer Squibb, there is no amicability. The acquisition is not approved by Human Genome Sciences' board of directors, and neither has the company suggested that shareholders tender their shares. In fact, they have been asked to do the opposite.
Should GlaxoSmithKline eventually succeed in its attempts to get its hands on Human Genome Sciences (which, in all honesty, does seem like the most likely scenario at this point) I do not feel that the acquisition will be as beneficial to its stock as the acquisition of Amylin by Bristol Myers Squibb as it will be based on hostility. There will be dissent and fighting at every step of the way, and no decision will be reached without argument. Although there are obvious potential financial gains that can be made for GlaxoSmithKline through this alliance, I feel that the long-term stability of the company and its stock will be compromised if this situation is forced.
GlaxoSmithKline, as always, remains a stable stock. It's traded between $44 and $46 for the most part through 2012 and Human Genome could give it a short-term push. But I expect that will eventually fall back to its norm. GlaxoSmithKline, however, keeps investors close with a 4.92% dividend yield.
The benefits of keeping profitable partnerships amicable should go without saying. Merck and AstraZeneca recently decided to extend their partnership. Essentially what is involved here is that AstraZeneca has the option to purchase Merck's interest in the deal, but this has been put off until 2014 at the earliest. This is an agreement that will benefit Merck greatly. Merck should gain five cents a share and about $200 million in revenue over the course of this year as a result of the amendments to their original agreement. When AstraZeneca does acquire the interest (which I feel will occur in 2014 and probably no later than that) Merck will also be eligible to receive a high amount in compensation.
Merck has been a hot stock recently, as it continues to scrape the top of its 52 week range and flirt with rising over $42. The company was trading for as low as $37 this March, and numbers have been up since. Like its competitors, Merck offers a great dividend so the fact that its up over 10% since January is a great plus.
Merck, AstraZeneca and Bristol Myers Squibb seem to have solidified their already solid years with these new deals, so I would recommend investing in them. GlaxoSmithKline may have to work out its Human Genome business before I see it rewarding investors outside its dividend. For now, though, the industry remains solid and no deal here seems to be anything frightening.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.