Human Genome Sciences (HGSI) and GlaxoSmithKline plc (GSK) recently announced a definitive agreement under which the latter will acquire the former for $14.25 per share in cash. With this acquisition, Glaxo will gain full ownership of lupus drug Benlysta along with albiglutide and darapladib.

Glaxo had first approached Human Genome in April 2012 with an offer price of $13 per share, which represented a premium of 81% to Human Genome’s previous day’s closing share price.

Despite the high premium, Human Genome’s board of directors rejected the offer, saying the price was inadequate. Glaxo subsequently launched a tender offer which was scheduled to expire on July 20, 2012.

The Agreement

Glaxo’s $14.25 offer price represents a premium of 99% to Human Genome’s closing share price on April 18, 2012, the day before the first offer. The transaction value is approximately $3.6 billion on an equity basis or $3 billion (net of cash and debt).

Glaxo’s tender offer was amended to $14.25 per share and has been extended until July 27, 2012. Around 427,042 shares were tendered and not withdrawn as of July 13.

Glaxo expects to realize cost synergies of at least $200 million by 2015. The company expects the acquisition to positively impact its core earnings from 2013.

Our Take

Human Genome’s acceptance of the raised offer does not come as a surprise. We always believed that chances of any other company acquiring Human Genome were low with Glaxo, a long-time partner of the company, in the fray. With the boards of both companies giving the nod, the completion of the acquisition is now just a matter of time.

We currently have a Neutral recommendation on Human Genome, which carries a Zacks #3 Rank (Hold rating) in the short run.


 
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