Depomed Finds Out the Hard Way Why You Shouldn't Snub a Takeover Partner Amid a Deal Frenzy

Published: Jul 09, 2015

Depomed (DEPO) Finds Out the Hard Way Why You Shouldn't Snub a Takeover Partner Amid a Deal Frenzy
July 8, 2015
By Riley McDermid, Breaking News Sr. Editor

Painkiller maker Depomed, Inc. may have wished it hadn’t snubbed Irish firm Horizon Pharma ’s earlier advances, said some analysts this week, after shareholders have begun suggesting entertaining an offer could have avoided Monday’s hostile $3 billion bid or even flushed out more suitors.

Depomed’s options to fight off a hostile bid are relatively limited,” Traver Davis, an analyst for Piper Jaffray, wrote in a note to clients this week.

The company’s shareholders are also likely disappointed that they’re missing out on the nearly $300 billion in M&A that’s been done in the biotech sector since January, at the highest prices in two decades. If Depomed had entertained Horizon’s first advances, it could now be in the middle of a bidding war, said market watchers.

Still, Depomed has refused to budge, after a series of advances made by Horizon have been decidedly rebuffed since its initial offer in May.

Under the terms of the offer, Horizon would pay Depomed $29.25, which is unchanged from its first May offer, but still provides a 42 percent mark-up from the company’s Monday closing price.

"Despite our repeated attempts beginning in March to engage Depomed's management and board of directors in friendly and confidential discussions, Depomed's management and board have refused to engage in discussions with us and rejected our proposal," said Timothy P. Walbert, chairman, president and chief executive officer at Horizon Pharma.

"We have elected to bring this proposal to the attention of Depomed's shareholders, who we expect, given the opportunity to understand the financial, strategic and operational benefits of this transaction will support it and will encourage their Board and management to begin constructive discussions with us promptly with the goal of completing a negotiated transaction."

Thomson Reuters calculated the equity value of the all-stock offer works out to around $1.74 billion, based on 59.6 million outstanding Depomed shares. Horizon is likely hoping to wrap Depomed’s five-product painkiller drug pipeline into its own, including star candidate Nucynta, which it bought from Johnson & Johnson for $1.05 billion in January.

So far, news of the potential deal has been met with warmth on Wall Street, where traders pushed Depomed’s share price up to $28.75 in mid-morning trading. Analyst, too, said the partnership showed promise.

"We think a Depomed sale makes sense if management can drive additional premium by engaging Horizon Pharma and possibly others," RBC Capital Markets analyst Randall Stanicky said in a note to client.

Others have noticed that whoever acquires Depomed also inherits its legacy of legal problems, including a looming generic threat from rival Allergan.

"The strategic and financial benefits of our proposal are highly compelling," said Walbert. "Given the significant revenue and operating synergies, as well as considerable tax savings, we would create substantial long-term value for Depomed's shareholders in addition to the immediate value realized through the proposed premium.

Horizon said the proposal is still subject to due diligence but noted it had delivered the full text of the letter delivered to Depomed today, July 7, 2015.

As New Jersey Biotech Booms, Will It Overtake Other States As Prime Location?
A week after Celgene Corporation announced it is officially the mystery buyer of Merck & Co. ’s former 1 million-square-foot R&D site in Summit, N.J., it quickly became our most popular story last week.

The company announced last Wednesday that it is buying the space, ending months of speculation about what Big Pharma company might move into the neighborhood.

The Summit, N.J. site is zoned research/office. The New Jersey site would put operations closer to some of the major biotech and pharmaceutical hubs on the East Coast.

But, by far, the most tempting part of doing business in the state remains New Jersey’s operating tax credit, which allows companies to sell their net operating losses to the New Jersey Treasury. One of the state’s most recognizable biotechs, Celgene, used the program until it became profitable, which was key to it staying in the state, said local officials.

That has BioSpace is wondering if New Jersey is becoming the new face of biotech. What do you think? Can the Garden State compete with other longtime stalwarts like California or Boston?

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