Market Report: GSK 'lining up bid for Danish biotech firm'

By Nikhil Kumar
Tuesday 13 January 2009 01:00

The drugs giant GlaxoSmithKline was the focus of market chatter last night, suggesting it was considering an offer for Genmab, the Danish biotechnology firm.

Speculation linking the two has done the rounds before, with analysts often mentioning GSK, which in 2006 signed an agreement to co-develop and commercialise a key Genmab drug, as the most likely predator for the Danish firm.

It was said that GSK may have made an informal approach and was contemplating an offer in the range of 450-500 kroner per share (£54-£61), more than double the level at which Genmab closed last night. Both companies declined to comment.

The chatter follows a recent note from Credit Suisse, in which the broker highlighted GSK as the most likely buyer, saying that Genmab had "all the 'tactical indicators' of M&A ticked".

Samir Devani, analyst at Nomura Code Securities in London, agreed that GSK was the most probable buyer but said: "We would be surprised if an offer is imminent in light of the sale of the co-promotion rights of ofatumumab [which is the subject of the partnership agreement between the two] back to GSK and believe a purchase is now more likely post-launch of the product. Irrespective, we believe at current levels Genmab is attractively valued and have a buy rating on the company."

Commenting on the speculated offer range, Mr Devani said: "It's not untypical to see acquisition premiums in the sector of 100 per cent, and GSK has previously bought shares in Genmab at 454 kroner per share." GSK closed up 16p at 1,305p last night.

Overall, the FTSE 100 was down 22.35 at 4,426.19, while the FTSE 250 firmed 32.11 points to 6,685.99.

The banking sector charged ahead, with Lloyds TSB advancing to 140.7p, up 7 per cent or 9.2p, and HBOS gaining 5.4 per cent or 4.3p to 84.1p. The two banks are on track to merge, with HBOS set to delist this week. The Government will own around 43 per cent of the new Lloyds Banking Group, after limited support for the lenders' open offers.

The strength last night was attributed to hopes of a new government-backed moved to stimulate bank lending, possibly in the form of a comprehensive loan guarantee scheme, or in the guise of new rules to manage capital ratios. A third option, the creation of a so-called "bad bank" to take on toxic assets, has also been mooted, but is considered less likely as a first step.

Credit Suisse, which upgraded Lloyds to "neutral" from "underperform", said the group stands to benefit "more than most from any extension in liquidity arrangements [having the highest loan-to-deposit ratio] and any adjustments to capital calculations [being the most pro cyclical]".

"Furthermore, we assume that a government indemnity scheme would only apply to UK lending and Lloyds/ HBOS is far more geared to the UK than the others," CS added.

Elsewhere, Citigroup downgraded Man, the London-based hedge fund group, which retreated 5.6 per cent or 13.75p to 230p. Moving the stock to "sell" from "hold", the broker exp-ressed concern about the prospect of a "negative shock" on assets under management at the flagship AHL fund when the company posts its third-quarter trading statement this week.

Bad broker sentiment also dep-ressed 3i, the private equity group, which eased 4.7 per cent, or 16.5p, to 331.75p. Citing the risk posed by de-gearing, Morgan Stanley switched its stance on the stock to "equal weight" from "overweight".

Parts of the mining sector remained unsettled, with Eurasian Natural Resources Corporation down 8.8 per cent, or 32.25p, at 334.75p.

Taylor Wimpey surged 17.7 per cent, or 3.75p, to 25p, as investors pegged their hopes on news of the company's debt talks when it posts an update to the market today.

Panmure Gordon said that although a new debt deal was unlikely to be announced before March, any indications of progress would be positive.

The broker warned, however, that in its view, "there is a high possibility that refinancing could be dependent on a debt-for-equity swap or a fundraising, both of which would be significantly dilutive".

The pubs group Punch Taverns went the other way, slumping 13.8 per cent, or 10.5p, to 65.75p, after RBS moved the stock to "hold" from "buy" in a new sector review, saying that while the group had its attractions, its high-level leverage and financing issuers were likely to keep risk perceptions high.

Also on the downside, the transport group Arriva shed 4.3 per cent, or 25.5p, to 564p after Investec moved the stock to "sell", arguing that it was less defensive than its current valuation implies.

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