The Long Buyout Valuation of Amylin... A Higher Price Yet To Come?

Some mergers are very straight-forward, and others are just odd.  Now we have an answer over whether or not Amylin Pharmaceuticals, Inc. (NASDAQ: AMLN) was going to be acquired or not.  Bristol-Myers Squibb Company (NYSE: BMY) announced going into the weekend that the drug giant will acquire Amylin for $31.00 per share in cash which values Amylin at about $5.3 billion. The buyout is not all that matters here as we want to see if there is the possibility of even a higher price yet.

The companies are calling it a cash tender offer and second step merger.  If you include Amylin’s net debt and a contractual payment obligation to Eli Lilly & Company (NYSE: LLY), the add-on would come to about $1.7 billion more and that generates a total merger of roughly $7 billion as far as Bristol-Myers Squibb is concerned.  What is interesting is a side deal that lowers this merger price for Bristol-Myers Squibb considerably.

Bristol-Myers Squibb and AstraZeneca (NYSE: AZN) simultaneously announced today that the two companies will enter into collaboration arrangements, “based on the framework of the existing diabetes alliance, regarding the development and commercialization of Amylin’s portfolio of products.”  After the merger is completed, AstraZeneca will make a payment to Amylin in the amount of approximately $3.4 billion in cash. Profits and losses arising from the collaboration will be shared equally. AstraZeneca also has the option to establish equal governance rights over key strategic and financial decisions regarding the collaboration, upon the payment to Bristol-Myers Squibb of an additional $135 million.

Does this sound possible?  If you do not include the debt and partner payments, it almost sounds like Bristol-Myers Squibb is getting to buy Amylin for less than $1.8 billion.  If you include the debt and obligations, then Bristol-Myers Squibb is getting the company for just under $3.5 billion.

Amylin’s buyout has been a long process.  It was not clear which drug giant would ultimately win the buyout process. Our latest figures were targeted in the range of $25 to $29 per share, with some targets as high as $30.00 or a tad higher under the best of scenarios. It looks like shareholders got the best scenario as the bidding targets actually started out long ago in the high-teens as a starter and the low-$20s.

The list of the big pharmaceutical names which had been mentioned were AstraZeneca PLC (NYSE: AZN), Sanofi (NYSE: SNY), Merck & Co. (NYSE: MRK) and Bristol-Myers Squibb Co. (NYSE: BMY).  Pfizer Inc. (NYSE: PFE) had also reportedly been interested but its interest waned as the price rose.

Some investors may wonder if a stalking horse bid will arise or not.  It seems unlikely.  On a standalone basis, the Thomson Reuters consensus price target was only $20.54.  Amylin closed at $28.20 on Friday and it hit a new 52-week high of $28.49 on Friday as well against a 52-week low of $8.03.  This sale price is nearly 300% higher than the low for the last year.  Our only question over the fair value is that the share price had been over $40 and even challenged $50 from 2006 to 2007.

This is one of those situations where investors might want to just take the gains and start looking elsewhere.

JON C. OGG