Astellas' Hostile Takeover Turns Even More Hostile

Mar 03, 2010
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When Japanese pharma giant Astellas went to OSI Pharmaceutical’s board on March 1 with a $3.5 billion cash offer (about $52 a share), it seemed like just a normal hostile takeover. But OSI’s board rejected that offer out-of-hand, just as the company had rejected a similar proposition in February. So what gives?

OSI’s CEO Colin Goddard cited Astellas’ “very significant undervalu[ing]” of the company as the reason for rejection in a letter to Astellas CEO Masafumi Nogimori. Share prices at OSI had previously closed at $37.02 on February 26, which would have put Astellas’ offer at a 40 percent premium. However, news of the bid sent prices skyrocketing to $57 at the closing bell on March 2.

After the rejection, Astellas filed a lawsuit in a Delaware court, asking the court to bar OSI from implementing a “poison pill” strategy (a.k.a., Stockholder Rights Agreement), which allows the board to dig in and impede a takeover. “This action arises from the Director Defendants’ violation of Delaware law and breach of their fiduciary duties in response to acquisition proposals that would enable OSI’s stockholders to realize the full value of their holdings,” the complaint said. But with share prices so much higher (as of Wednesday morning) than the offer price, Astellas’ complaint seems a little weaker.

A stronger argument is Astellas’ claim that OSI is running on just one drug: Tarceva (erlotinib), a treatment for pancreatic cancer and non-small cell lung carcinoma (NSCLC). OSI does have a pipeline, consisting of two Phase I diabetes drugs (one of which the company has licensed to Eli Lilly) and three oncology drugs, including two in Phase I and one in Phase III. But Astellas said these sectors are “where products are most difficult to develop and commercialize.”

That’s not to say that OSI is completely committed to independence—the Financial Times has even posited a possible counter offer from Roche. OSI’s partner-in-marketing for Tarceva would not comment on that rumor, and nothing has materialized as yet.

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