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CAT s Rival Suitors Might Throw Its Merger with OGS into Question

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Until last week, the merger between Oxford GlycoSciences and Cambridge Antibody Technology, announced on Jan. 23, seemed like a done deal. Sure, shareholders from both parties, as well as the court, still needed to approve it. But both representatives of both companies and experts said that the couple was well-situated with a comfortable cushion of shared cash, and matched in terms of its technologies: OGS’s proteomics capabilities and CAT’s antibody knowledge, they agreed, would go together well. In addition, Invesco Asset Management and Fidelity Investments, which hold almost 30 percent of OGS’s issued shares, had already indicated in non-binding letters that they would consent to the merger.

But recently, doubts have risen as to whether CAT is paying a high enough dowry for its bride in the proposed all-share trade, and rumors are lingering that rivals are preparing to speak up in time before the extraordinary general meeting of OGS’ shareholders on March 11, during which they are expected to vote on the merger. The fact is that CAT has valued OGS’s share capital at approximately £109.6 million ($174.9 million), a premium of almost 30 percent over its stock price on the last business day before the merger was announced. While this might sound like a fair deal, it is still 20 percent less than OGS’ cash balance of £136.4 million ($217.6 million) on Dec. 30.

On Valentine’s weekend and over the following days, several British news sources reported that Celltech of Slough, UK, was preparing its own bid, citing unnamed sources. Later on in the week, names of three other companies came up as potential rivals: Xenova, also of Slough, UK; Actelion of Allschwil, Switzerland; and Medarex of Princeton, NJ. Medarex is one of OGS’ collaborators, and Donald Drakeman, its CEO, sits on OGS’s board of directors.

In response to the rumors, OGS issued a press release last Monday, confirming that “a number of parties, including Celltech” had requested information about OGS under Rule 20.2 of The City Code on Takeovers and Mergers, a UK regulation which says that any information about a company given to an offerer has to be provided to other potential offerers as well. OGS declined to reveal the identity of the other companies.

At this point, it’s anybody’s guess whether there will be other bids or not. “We have looked at the data, [but] we haven’t, at this point, made an offer,” said Richard Bungay, director of corporate communications at Celltech. He said the company is planning to announce a new CEO — widely believed to be Göran Ando of Pharmacia — by the end of March.

Xenova and Actelion declined to comment for this article; Medarex did not return a phone call.

Celltech — which, according to UK newspapers, is pondering an all-cash offer for OGS — might value OGS’ shares higher than CAT did, but the takeover would be a loss for those OGS shareholders who bought their stock originally at a much higher share price. But would such a merger make strategic sense? “It could be argued that OGS’ proteomics platform could provide targets for Celltech’s antibody discovery platform to use,” said an analyst for OGS, CAT, and Celltech who requested to remain anonymous. However, “with Celltech, you get the feeling that OGS’ proteomics approach may not be the only they would use, while CAT may be more reliant on OGS,” he added.

According to a report published by Salomon Smith Barney last week, there is no rationale for a takeover of OGS by Celltech. “We believe that the incoming CEO will have more important issues (i.e. mid-term earnings) to manage and that the acquisition of OGS would be dilutive on both profits and management focus,” the report said.

If Medarex were serious about a bid, “it would have been the first on the table, not the last,” given its close relationship with OGS, the anonymous analyst said. He did not think that either Xenova or Actelion would be a good fit for OGS, either.

If the engagement were to turn sour indeed, the party pulling out would have to pay £1.1 million ($1.75 million) in termination fees, according to OGS. But it will not be clear if any of the other potential fiancés are serious until an offer is on the table. “It sounds to me as if this is a purposeful leak to try and bring any other bids out of the woodwork,” said the analyst. “It’s a call for last orders, so to speak.”

— JK

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