Patheon discussions with Lonza terminated
October 20, 2009 by leonardzehr · Leave a Comment
Lonza Group, a Swiss drugs industry supplier, has withdrawn a $460-million (U.S.) offer to acquire Mississauga-based contract drug manufacturer Patheon (TSX:PTI), citing the opposition of majority shareholder JLL Patheon Holdings, a U.S. private equity company.
Earlier this year, Patheon rejected an unsolicited takeover bid from JLL, which holds a 57% stake in Patheon, as being too low. Subsequently, Lonza had offered $3.55 a share for Patheon, topping the JLL offer. Shares of Patheon finished trading at $2.84 (Canadian) on the TSX Monday.
The Patheon statement also noted that it and Lonza have agreed to terminate discussions regarding other strategic options that would not involve the sale of JLL’s stake in Patheon. Lonza had been aiming to use the Patheon deal to expand into making end products.
In a research note to clients, RBC Capital Markets’ analyst Douglas Miehm said that Lonza’s termination of discussions with Patheon was no surprise. Mr. Miehm believes Patheon now has few options other than legal remedies or convincing JLL to increase its previous$2.00/sh (U.S.) bid to a level that will allow JLL to purchase the remaining shares of Patheon. However, a much more likely scenario according to Mr. Miehm is JLL waiting and revising the current composition of the board at Patheon’s special meeting of shareholders in December before entertaining any new bid for the company.
Dundee Securities analyst James Kuo said in a research note that he continues to rate Patheon as a “buy” with a 12-month price target of $5.
“We would expect shares to be volatile in the near-term, as short-term traders adjust their expectations for the company,” he said. But as Patheon completes its “turn-around and as these efforts filter through to the bottom line, that share performance will begin to reflect the improved financial performance,” he added.
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