The world was a happier place to be today if you count watching people at my favorite bagel store this afternoon. Why? Well, bagels are buttered and salads are served no more than a 300-yard walk from the headquarters of newly acquired Human Genome Sciences (NASDAQ:HGSI).
After a small spat over an initial offering price of $13 per share in April, British pharmaceutical giant GlaxoSmithKline (NYSE:GSK) upped the price to a healthy $14.25 per share, or $3.6 billion, and both boards have approved the transaction.
So, there’s smiles all around the shop. At least for now.
It seems, however, that a small subset of investors who were prepared to hold out for more money are not completely pleased, as Reuters is reporting that Levi & Korsinsky is investigating the HGSI board of directors for “possible breaches of fiduciary duty” with respect to the sale.
Do they have a legitimate beef, or is this just a case of heartburn?
HGSI’s original distaste for the deal back in March was that the price was too low (despite a nearly 50% premium), and in response the company flatly rejected the offer, played around and adopted a poison-pill strategy that, while not getting into the gory details, effectively blocked an unwanted bidder.
Food fight! GSK said it would withdraw the offer, which as chronicled before caused some saddened faces at the bagel store in April. HGSI was sued in court by one of the disgruntled shareholders, claiming the poison pill would prohibit the ability of other suitors to buy the company. Meanwhile, GSK said it was prepared to view the buy as a hostile offer.
HGSI opened up the bidding war for the company by setting a July 16 date for offers from any interested parties, and for the most part the room got silent. Earlier this month Celgene (NASDAQ:CELG) was identified as a possible buyer, but it seemed more rumor than substance.
That left GSK as really the only viable bidder. Why? Because the companies jointly share in the rights and profits of the lupus drug Benlysta, which they developed in March 2011, and GSK certainly is not going to put that in any jeopardy in the event another company tries to buy the franchise.
GSK and HGSI also are in joint development of three other drugs covering three of the biggest potential markets (and unfortunately diseases) in health care: darapladib (for cardiovascular disease), and albiglutide (for type 2 diabetes) — both in Phase 3 trials — and Rilapladib (for Alzheimer’s), currently in Phase 2 trials.
It’s almost as if HGSI is part of the GSK farm system, and GSK wants to call up the entire club to the show. I supposed I’d want to protect my future franchise players, too, if I was the GM.
As for today’s lawsuit, the “competition for the company” argument is probably a losing cause for the reasons set out above, while the “undervalued” case — based on perhaps one analyst who suggested a fair value of $23 per share — will require some serious forensic accounting and financial analysis. “Frivolous” might be the better term.
No, I suspect $14.25 is just about the right price for a company that, like all pharmaceutical plays, is hoping for the big breakthrough to justify the big (research) costs. In fact, I suspect GSK is hoping that some economies of scale might come into play with one company under the GSK banner, even if some of those economies come out of the local office up the street.
In which case, I suspect the bagel store will be easier to navigate at lunch hour.
Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing he does not hold a position in any of the aforementioned securities.