Alpharma Rejects King Pharma's Offer; What Now?

Alpharma (ALO) has announced the rejection of King Pharmaceuticals' (KG) unsolicited $37 per share offer as "financially inadequate."

ALO has also disclosed the following with respect to third-party interest:

We believe other offers or alternatives to the King offer may emerge from this process that will provide shareholders with greater value than $37.00 per share. Indeed, we have received expressions of interest from multiple parties who contacted us following King’s public disclosure of its proposal or who our financial advisors solicited at our request. We have entered into confidentiality agreements with a number of these parties who have now begun their due diligence review, and have already received a written preliminary indication of interest for a business combination from a party that includes a per share price in excess of the King offer of $37.00 per share.

These developments obviously suggests that ALO's prospects for receiving close to, or above, the $40 level are now significantly greater than just two weeks ago. It will be noted again that even the $37 offer level is perceived as adequate, so it is currently not anticipated that this will evolve into a bidding war or auction process that will push ALO's price beyond the low $40s, even in a best-case scenario.

Nevertheless, KG has essentially no alternative but in increase its offer closer to the $40 range if it hopes to avoid a drawn-out competition with other entities for ALO.

Disclosure: We have no positions of any kind, in any security. We are a completely neutral source of research and analysis.