Odds-Making on a Human Genome Sciences Acquisition (HGSI, GSK, BIIB, MRK)

October 18, 2011 · Filed Under Financial, Lupus, M&A, Rumor 

Human Genome Sciences Inc. (NASDAQ: HGSI) is surging on reports that GlaxoSmithKline PLC (NYSE: GSK) could be set to make a $25.00 per share offer to acquire the company.  The report surfaced in the Daily Mail out of the United Kingdom, and we would note that this publication pushes out enough rumors that it could be called the Daily Rumor (or Rumour for the Brits).  It also has a spotty track record.

The reason for the speculation is simple… GSK was long thought of to be the natural buyer because of the long pacts that are in place already.  The two already have Benlysta as the lupus treatment under a collaboration pact.  Then there is the issues of HGS’s pipeline.

What is interesting is that the Daily Mail also threw out Biogen Idec Inc. (NASDAQ: BIIB) and Merck & Co. (NYSE: MRK) could also be suitors.  Our caution here is that those companies would have to want to be involved in collaboration pacts with GSK either way.

It is always interesting when you see a rumor of a 100% buyout premium.  Sadly, even a 100% premium is not an assured price that would get a deal done.  It would seem likely, but others may still fight it as the 52-week high is $30.15.  The thing that would make a deal simple is that the market cap is only about $2.4 billion. 

One issue that current investors could make for undervaluing the company is that the consensus price target from analysts is still above $24.00.  If the stock is worth that on its own, investors could argue a buyout should make it worth even more. 

A deal would make sense for GSK here, but we would be a bit more cautious on betting the farm that another large player would want to buy the company.  It would be normal that GSK would not allow itself to be stuck in a new deal under a change of control if it found the buyer to be difficult or incompetent.  That being said, anything is possible.  This is not the first time buyout rumors have circulated around Human Genome Sciences.

Shares are up almost 13% at $12.68 and the 52-week trading range is $10.40 to $30.15.

Since this is probably the fourth or fifth time we have heard “HGSI Buyout Rumors,” our odds would automatically put the chance under 50% that a deal is imminent just because of the history of rumors.  Still, an acquisition would make sense for GSK or for a large player that GSK would want to work with.  That being said, we’d assign a 33% to 40% chance of a deal… 1-in-3 or 2-in-5.

JON C. OGG

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