EP Vantage Exclusive – Allos board rejected $2 a share bid for company

In yet another twist in the ongoing saga of the Allos Therapeutics-Amag Pharmaceuticals merger, EP Vantage has learned that earlier this month the Allos board rejected an alternative cash offer of $2 a share made for the company. The details of the bid were buried deep in a September 15 SEC document providing an update on the merger process; it stated that ‘a publicly-traded pharmaceutical company with a market capitalisation at that time of less than $500 million’ expressed an interest in a merger with Allos, for either $1.37 in cash and 63 cents in shares of the mystery bidder dubbed 'Allos Company A' or $2 per share in cash outright.

The board then subsequently met four times to discuss the bid before rejecting it on September 13 in favour of the existing deal with AMAG. What may surprise shareholders of Allos and Amag, many of whom have shown their displeasure in the proposed tie-up by sending the shares in both companies downwards, is that Allos has not publicised this bid more, even if it was deemed less ‘favourable from a financial point of view’ than the Amag deal.

Falling stock

Investors in Allos could also be questioning whether it is indeed less favourable, given that the value of the deal to Allos has fallen in line with the fall in Amag’s stock. At last night’s close of $14.07 for Amag shares, which have declined by 26% since the deal was announced in July, Allos shareholders would get $1.80 a share.

Allos shares are currently trading at $1.65 and are unlikely to recover much even if Amag does walk away, given the underlying problems of underperforming products that have brought the two companies together will still remain (Allos and Amag’s marriage of convenience could end happily, July 21, 2011).

As such, a $2 offer would represent a 21% premium to the current share price, and something that shareholders might at least want to discuss, even though it is still below the $2.09 the shares were at prior to the Amag deal being announced. Also, the investors who dumped their stock in droves at the beginning of the month, sending Allos down to a 52-week low, might not be impressed to hear that a deal worth $2 had been on the table at the time and rejected.

Walking away from the Amag deal would also not be too much of a problem, given that the $9m break fee Allos would have to pay should not represent too much of a barrier.

Allos representatives were not available for comment at publication time. 

The devil you know

Despite this, in rejecting the offer Allos management may have decided better the devil you know. What the public can glean about the mystery company from the SEC filing is that other than being listed and having a bigger market cap than Allos, it could have funded the acquisition itself and does not need the approval of its board.

However, self funding an acquisition of Allos is not that much of an ask given that Allos currently has approximately $110m in cash on its balance sheet, meaning the $210m price tag at $2 a share, would in reality have cost $100m.

The rejection by Allos of the bid from 'Allos Company A' follows a similar rejection by Amag last month of an $18 per share cash offer for the company by hedge fund manager Martin Shkreli (Hedge fund makes offer to derail Amag-Allos merger, August 3, 2011). In this instance there were real concerns how the mercurial Mr Shkreli would have funded the $381m bid for the company.

Anything but this

But with both Allos and Amag investors seemingly unhappy with the proposed merger and a vote due on October 21 to approve it, if either Mr Shkreli or a white knight comes back with another well financed offer for Amag, or Allos shareholders demand more details of the mystery bidder and agitate for it to be looked at again, it might be enough to break up what is already a very shaky merger.

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