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Bristol, Tennessee-based King Pharmaceuticals, established in 1994, is a branded pharmaceutical company that develops, manufactures and markets therapies and technologies primarily in specialty-driven markets that include neuroscience hospital and acute care medicines. On the other hand, the Bridgewater, New Jersey-based Alpharma makes pain treatments as well as medicines for livestock and poultry.
King Pharma had earlier in August offered a price of $33 per share to acquire Alpharma, which got rejected. The offer was later sweetened to $37 per share. King Pharma also went hostile by taking the offer directly to shareholders of Alpharma. Further, in September, Alpharma's board of directors unanimously rejected King's revised offer as "financially inadequate" and urged the shareholders not to tender shares to King's offer as the board was in the process of exploring all strategic alternatives to maximize shareholder value.
As per the merger agreement announced Monday, King's tender offer for shares of Alpharma, which was scheduled to expire on November 21, would be extended until December 19. As of close of business on November 21, 30.71 million shares of Alpharma or about 73% of all outstanding shares were validly tendered. Alpharma's Board recommends that its stockholders tender their shares into King's amended offer.
King sees several benefits emerging from the combination. For one, it expects Alpharma's Animal Health division to increase the diversification of King's business, which is estimated to provide steady cash flow to fuel future strategic initiatives.
Additionally, King feels that the commercialization capabilities of the combination will enhance the anticipated launches of Remoxy and Embeda or ALO-01 capsules, designed to resist or deter common methods of opioid misuse and abuse. Remoxy, an investigational drug, is an abuse-resistant, controlled-release oxycodone for moderate-to-severe chronic pain.
ALO-01 is Alpharma's product candidate currently under review with the FDA. In September, the company said results from a phase III pivotal efficacy trial revealed that ALO-01capsules provided significant pain relief in patients with moderate-to-severe pain due to osteoarthritis of the hip or knee, compared to placebo.
The transaction is expected to be accretive to King's earnings per share, excluding any special items, in the second full year following completion of the deal. The company hopes to achieve synergies of $50 million to $70 million over the same time period, derived principally from G&A, R&D, and savings to be achieved by avoiding the expense of hiring additional sales representatives for the anticipated launch of Remoxy.
Credit Suisse and Wachovia Securities are acting as financial advisors, and Dewey & LeBoeuf LLP is acting as legal counsel, to King.
Banc of America Securities LLC and Simpson Thacher & Bartlett LLP are acting as financial advisor and legal counsel for Alpharma, respectively.
Commenting on the deal, Brian Markison, Chairman, President and Chief Executive Officer of King, said, "We are excited about the combination of King and Alpharma, which will create a leading specialty pharmaceutical company with greater scale and capabilities."
Dean Mitchell, Alpharma's President and Chief Executive Officer, said, "We believe the combined company has a compelling strategic logic and will create a strong company for both shareholders and employees."
Last month, Alpharma reported a decline in third quarter net income to $4.1 million or $0.10 per share from $15.1 million or $0.34 per share reported last year. Total revenue increased 32% to $175.7 million from $133.2 million in the comparable period a year ago.
On November 14, brokerage Cowen upgraded Alpharma shares to "Outperform" from "Neutral", as analyst Ian Sanderson estimated the shares to outperform the market by 15-18% over the next several weeks.
The analyst felt that at Alpharma's existing share price of over $30, investors are assigning a 70% chance for the $37 per share offer by King to close. An improving fundamental outlook, the analyst's rising confidence in a positive FDA advisory committee review of Embeda, and slight improvement in the credit markets raised his conviction that King would execute on its cash offer for Alpharma shares.
KG finished up the regular trading session on Friday at $8.62, higher than the prior close of $8.14, on 4.66 million shares.
ALO closed Friday's regular trade at $33.50, down from the previous close of $34.19, on 1.18 million shares. In pre-market trading Monday, the stock was up $2.30 just before 8:45 am ET, climbing to $35.80.
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