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Pharmaceutical giant, Pfizer, has seen its share price (NYSE:PFE) increase by nearly 7% since the end of January, largely on the announcement that it has entered into “a definitive merger agreement” to acquire biosimilar manufacturer, Hospira (NYSE:HSP). Hospira shares have risen sharply from $64.80 on 04 February to $87.64 at market close yesterday. That’s a 35% increase in one day!
Some are happy, but not everyone
It would seem that any Hospira shareholder would be excited at a windfall of that magnitude. Hospira shares have risen from the mid-40’s to the mid-60’s over the last year, but the $90.00 per share cash offer put on the table by Pfizer secured the unanimous approval of the Hospira board, like a bird in the hand. And that’s just the tip of the iceberg.
Pfizer shares normally trade at an average volume of 26 million per day. Yesterday, that activity more than double on the sale of 59 million shares. Hospira shares trade at a more modest average volume of 1.6 million. Yesterday’s trading volume was nearly 12.5 million.
The deal has a total enterprise value in the area of $17 billion. So who wouldn’t be happy?
Sold or sold out?
The deal has already come under fire by at least three separate law firms, as best I can tell at this point, including the law offices of Vincent Wong, the firm of Brower Piven, and the offices of Ryan & Maniskas. Each want to launch an investigation into the board of Hospira, alleging that the board is looking out for its own interests rather than the interests of the shareholders.
I can never understand why these guys don’t understand the system. Of course the board members will benefit. “It’s the economy, stupid.” Some are alleging that the premium should have been even greater. This thinking is based largely on the idea that Hospira’s pipeline is about to burst forth with products that will ensure even greater success. What they are forgetting is that Hospira has an Alpine-esque uphill climb to be able to impact the global market to the extent of anything close to what Pfizer offers. Daniel Conover, an analyst at Morningstar, declared the offer to be fair and justified, “based on Pfizer’s ability to unlock more value with its global reach.”
Based on the premium paid, this will be the fourth-largest pharm acquisition in U.S. history.
What makes the deal ideal
Pfizer manufactures and markets popular branded prescription pharmaceuticals, such as Lyrica, Enbrel, Celebrex, Lipitor, Viagra, Norvasc, Sutent, and Premarin as well as over-the-counter consumer healthcare products such as Advil, Caltrate, Centrum, ChapStick, Emergen-C, Preparation H, and Robitussin.
Hospira develops and provides about 200 generic, specialty injectable pharmaceuticals. Kevin Kendra, an analyst at Gabelli & Co., sees the sound reasoning for this merger. “A lot of established products are diminishing assets, whereas the generics business is growing nicely for specialty injectables. The portfolio tends to be more durable.” Pfizer expects the market for those injectables to double by 2020, making the proposition a win for both companies, despite what some misguided ambulance-chasing lawyers may think.
Nearing the close of the business day on the U.S. East Coast, Pfizer shares are trading at $33.18, up 1.17% on the day. Hospira has declined modestly to $87.49, down 0.18%, but still up 35% over the past two days.
