Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

OSI (OSIP): Congratulation Prohost Subscribers. A Take Over with over 40% Premium.

|Includes: ALPMF, OSI Pharmaceuticals Inc. (OSIP)

It was easy to predict and Prohost did not miss.  Prohost did not predict the name of the buyer, but has predicted a take over and kept reminding its shareholders about this prophecy in each and every Prohost Letter, together with the same for other firms. Remember the two letters TA, which are there in the Prohost tables (Target for acquisition) that are there since several months    reminding you about the articles predicting the acquisitions so you do not forget.


Yesterday the news announced that the Japanese firm Astellas Pharma will commence a tender offer to acquire all outstanding shares of common stock of OSI Pharmaceuticals (OSIP) for $52.00 per share in cash, or an aggregate of approximately $3.5 billion on a fully diluted basis. The premium is significant reaching of over 40% on the closing price of OSI's common stock of $37.02 per share on February 26, 2010, a 53% premium to the stock three-month average of $34.01.  


OSI is the developer of the famous lung cancer drug Targeva (erlotinib). The firm’s pipeline is impressive and the transaction offers Astellas marketed products and a superior pipeline of oncology, diabetes, and obesity products. The marketed products include Tarceva - a small molecule drug, which inhibits the receptor tyrosine kinase activity of the protein product of the HER1/EGFR gene and Novantrone, a mitoxantrone for injection concentrate.


Astellas is inheriting also OSI-906, an oral small molecule IGF-1R inhibitor for various cancers, including NSCLC, breast, pancreatic, prostate, colorectal, adrenocortical, hepatocellular carcinoma, and ovarian; PSN821, an oral small molecule drug with anti-diabetic and appetite suppressing effects for type 2 diabetes; and OSI-027, a small molecule TORC1/TORC2 inhibitor to supersede first generation mTOR inhibitors. Other drugs include OSI-296, a novel tyrosine kinase inhibitor (TKI) that blocks compensatory signaling in epithelial tumor cells; OSI-930, a multi-targeted TKI that acts as a potent co-inhibitor of the receptor tyrosine kinases c-kit and the vascular endothelial growth factor receptor-2; PSN602, a novel dual serotonin and noradrenaline reuptake inhibitor for the long-term treatment of obesity; and OSI-632, an inhibitor of VEGFR-2.


The pipeline drugs are extremely important and are expected to be used in combination with other approved drugs especially as more and more pathways involved in cancer and other diseases are discovered. (Read Prohost article “Gene-Disease Story” in the upcoming Prohost Letter #299).




Astella is a real winner. With osi part of it, its financial strength and a product pipeline that fits future demands, adding its strong business operations and experience in the development and sales of new products, the combined company will be exceptionally promising. Astellas has great respect for the OSI organization and expects to integrate the strengths of OSI's business and employees into its operations as it has in the past with similar strategic acquisitions. Astellas will be offering a great investment opportunity. 


Astellas will commence a tender offer on March 2, 2010, to purchase all outstanding common stock of OSI for $52.00 per share in cash.  Following successful completion of the tender offer, a merger will be completed at the same price. The complete terms and conditions of the offer will be filed with the U.S. Securities and Exchange Commission and disseminated to OSI stockholders.  Astellas has cash and cash equivalents on hand to complete the transaction.  The offer is not subject to any financing or due diligence conditions, and will be subject only to customary closing conditions, including the tender of a majority of OSI's shares of common stock on a fully diluted basis, and OSI's Board taking all necessary actions to make its stockholder rights plan and Section 203 of the Delaware Corporation Law inapplicable to Astellas' offer.


There are no anticipated regulatory hurdles to completion.


Citigroup is acting as exclusive financial advisor to Astellas and Morrison & Foerster LLP is acting as legal counsel.


Following is a copy of the letter Astellas sent earlier today to Colin Goddard, OSI's CEO:


Dear Dr. Goddard:


As you know from our meetings, we have a great deal of respect for you and OSI, its employees and what the company has achieved.  We believe there are significant benefits from OSI's acquisition by Astellas and believe that a combined entity would allow us to achieve the goal of discovering, developing and delivering novel medications for patients with unmet needs in the oncology space far better than each of our companies could do independently.

When we met on February 12, 2010, I presented our proposal to acquire all of OSI shares for $52 per share, a 50% premium to the prior day's closing price.  This followed Astellas' numerous attempts to engage in meaningful conversations with OSI over the last 13 months regarding the potential for bringing our two businesses together.  


I was hopeful that our February 12th meeting would have finally resulted in a constructive attempt by you and OSI's Board to discuss a transaction and bring value to your stockholders.  Instead, your written response dated February 22nd stated that our proposal "very significantly undervalues" OSI.  It also contained a confidentiality agreement with a two-year "standstill" provision which we believe would not be in your stockholders' best interests, as it would have restricted us from making our offer directly to them.


As we have stated to you consistently in our many communications to you over the last 13 months, we believe the acquisition of OSI by Astellas makes for a compelling business proposition and provides a unique opportunity for our respective stockholders, employees and customers. However, because your response indicates that you have no intention to engage in substantive discussions, our Board has authorized me to take our offer directly to OSI's stockholders.


We remain enthusiastic about the potential of this transaction to realize the value of OSI's current commercialized products and to ensure the successful development and commercialization of additional products from its pipeline.  We respect your organization very much, and as such we would expect to integrate the strengths of your business and of OSI's employees into our company as we have in the past with similar strategic acquisitions.


Our proposal would be subject to standard acquisition conditions, including the removal of your stockholder rights plan, and is not subject to any financing or any due diligence conditions. We do not foresee any regulatory or other impediment to closing.


We continue to be excited about the possibility of bringing our two organizations together and we hope that you and your Board will reconsider your position and work with us to achieve a mutually beneficial outcome. Astellas has engaged Citigroup as financial advisor and Morrison & Foerster LLP as legal counsel to assist us in completing this transaction.  We and our advisors stand ready to meet with you and your advisors to answer any questions you may have about our offer.


Congratulation Prohost Subscribers. We remind you though that the other firms in Prohost tables that have the two letters (NYSEMKT:TA), will soon follow.

Disclosure: Long Osip