GlaxoSmithKline turned hostile against its long-term partner Human Genome Sciences yesterday, revealing it has approached the US-based biotech with a $2.6bn (£1.6bn) offer that HGS rejected.
Britain's biggest drug maker approached HGS's board with a $13-a-share cash offer, more than more than 80 per cent higher than the US group's closing share price on Wednesday. But the board immediately rejected the unsolicited offer, claiming it "does not reflect the value" of the company and said it was considering putting itself up for sale.
Glaxo and HGS have worked together successfully on Benlysta, the first new drug approved for lupus in the US in half a century – although HGS's share price has been hit this year after initial sales of the drug disappointed.
Both companies are also co-developing two other experimental drugs: darapladib to treat heart disease and type-two diabetes drug albiglutide, which are both also in late-stage trials.
Glaxo's chief executive Sir Andrew Witty said: "Having worked together with Human Genome Sciences for nearly 20 years, we believe there is clear strategic and financial logic to this combination for both companies and our respective shareholders – and that now is the appropriate time... for our two companies to combine."
He said the offer eliminated "substantial execution risk" for HGS shareholders and delivered value superior to what "HGS can reasonably expect to create as a standalone company."
Glaxo said it would expect to achieve at least $200m in cost synergies from the deal by 2015 and anticipates it would boost earnings by 2013. The pharmaceuticals giant said the acquisition would not influence its buyback programme, and that it expects to repurchase £1bn to £2bn in shares this year.
Sir Andrew added: "We are disappointed that Human Genome Sciences has rejected our offer without discussion and are confident that our offer is in the best interest of shareholders of both companies."
Glaxo has hired Lazard and Morgan Stanley as financial advisers on the deal. It has also secured law firms Cleary Gottlieb Steen & Hamilton and Wachtell, Lipton, Rosen & Katz for legal advice. HGS has hired Goldman Sachs and Credit Suisse to protect itself from Glaxo's approach, plus US law firm Skadden, Arps, Slate, Meagher & Flom and City giant DLA Piper.
Sir Andrew wrote to Thomas Watkins, the chief executive of HGS last week, saying: "We believe the acquisition can be completed expeditiously and are prepared to commence a cash tender offer with no financing or due diligence condition. We are prepared to move forward immediately. We are confident that the transaction will promptly receive all necessary regulatory approvals, including antitrust clearances."
Drug makers are facing growing pains, with blockbuster medicines going off patent, and are turning to M&A as a solution. Between 2008 and 2010 the industry saw a string of mega-deals, including Pfizer acquiring Wyeth for $68bn, Novartis buying the rest of Alcon for $39bn, and Roche buying Genentech for $46.8bn. So far this year, pharmaceutical deals worth $18.5bn have been announced, 5 per cent above the same time a year ago, according to Dealogic.