Glaxo Backs Human Genome Into a Corner

Frustrated by Human Genome Sciences (NASDAQ:HGSI) rejection of its acquisition overtures, GlaxoSmithKline (NYSE:GSK) will take its offer of $13 a share directly to the biotech company’s shareholders.

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However, the move may result in a protracted legal battle, as about 78 percent of Human Genome’s capital is held by just 10 investors.

According to Mark Evans, fund manager at Taube Hodson Stonex, who holds 5.6 percent in the target company, “They will do fantastically well out of this — at $13 it is a steal. I still think it is very likely that they will have to pay more.”

The takeover struggle has interesting power play. The 10 large investors in Human Genome could have an overriding say in the matter, and may well be in the driving seat. On the other hand, Glaxo has comfort in the knowledge that no white knight could likely emerge to thwart its bid — this is because key drugs have been jointly developed between Human Genome and Glaxo, and a competing buyer would get only partial ownership to their rights.

“Glaxo holds a lot of the cards in this story,” said Navid Malik, an analyst at Cenkos Securities. Of course, Glaxo’s interest is to take over complete ownership of these drugs.

Human Genome has hired Goldman Sachs (NYSE:GS) and Credit Suisse (NYSE:CS) to scout all options, including a sale of the company. Glaxo was invited to the deliberations but declined saying, “GSK’s participation in the process is unnecessary as its offer is not conditioned on due diligence or financing and can be completed expeditiously.”

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