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Acquisition activity picked up again, as the second quarter came to a close. The bulk of the action took place in the drug and healthcare segment, as a number of companies looked to bolster their product pipelines. The day’s largest transaction pairs Los Angeles-based biotech company Abraxis BioScience (ABII) with cancer drug developer Celgene Corporation (CELG). Abraxis agreed to be acquired for $2.9 billion in cash and stock. Under terms of the deal, Celgene would pay $58 in cash and 0.2617 of a CELG share for each Abraxis share held. Based on the closing prices the day prior to the announcement, this translates to an offer of $71.93 a share and represents a premium of 17%.
Abraxis, along with its injectable cancer drug Abraxane, should help broaden Celgene's cancer treatment platform. Abraxane, currently approved for breast cancer patients, is being tested for numerous other treatments, including lung and pancreatic cancer. If the drug receives approval for the additional treatments, Celgene may well end up paying another $200 million to $650 million as part of the deal, as well as additional royalties. The acquisition currently awaits stockholder and regulatory approvals, but is expected to close in the fourth quarter.
France’s largest pharmaceutical concern Sanofi-Aventis (SNY) also looked to build its cancer treatment portfolio, acquiring a small privately held biotech company. TargeGen focuses on the development of molecule kinase inhibitors and would expand Sanofi’s pipeline for leukemia and blood disorders. SNY will pay $75 million up front for TargeGen, but successful drug development may well lift the total payment up to $560 million.
The medical services sector also saw a smaller deal, as Coventry Health Care (CVH) took aim at broadening its national footprint in the Midwest. The managed health care provider purchased Mercy Health Plans from Sisters of Mercy Health System, with its business primarily located in Missouri and Arkansas.
As part of the acquisition, the company also entered into a long-term provider and customer relationship with Mercy’s parent, the eighth-largest Catholic health-care system in the United States. Terms of the buyout were not disclosed, but the addition of Mercy would bring Coventry’s total membership in the six-state Midwest region to over 1.2 million, as well as enhancing its relationship with a multistate health care provider. The purchase is likely to close within three to four months and will probably be slightly accretive to earnings in 2011.
Elsewhere, defense systems and equipment maker Argon ST (STST) has found a suitor in aerospace giant Boeing (BA). After months of speculation of a possible sale, Argon has agreed to be acquired by Boeing for roughly $775 million. Specifically, STST stockholders would receive $34.50 a share, representing a 40%-plus premium over its closing price prior to the announcement. This is an all-cash deal that is expected to close by the conclusion of the third quarter, pending shareholder and regulatory approvals.
Argon would be a stand-alone subsidiary and a new division of Boeing Network & Space Systems. The deal would expedite Boeing's expansion into the reconnaissance and surveillance side of the industry, though it would likely have negligible effect on earnings in the coming year.
Finally, not all acquisitions were welcomed with open arms. Just ask Telefonica (TEF). Indeed, the global telecom giant was blocked by the Portuguese government in its latest attempt to acquire the 50% stake of Brazil-based mobile-provider Vivo from Portugal Telecom. The government employed the use of its ``golden share'' that enables it to override all other shareholder votes, 75% of which were in favor of the deal. This action comes on the heels of Telefonica's third offer, which has climbed from 5.8 billion euros to 7.15 billion euros over the last month. Telefonica will likely continue to pursue the transaction for now, as the European Court of Justice was expected to rule shortly on the legality of the Portuguese government's use of the ``golden share''. The Vivo assets are a vital component for each telco's growth strategy, and neither side appears ready to back down easily.