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Novartis Moves on Chiron

But Chiron shares already have moved above the $40 offer price.

Updated from 12:44 p.m. EDT

Though flu-vaccine maker


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has received a buyout offer from Swiss drug giant


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, shareholders appeared to believe the highest bid may be yet to come.

Novartis holds a 42.2% stake in Chiron and has submitted a proposal to acquire the rest of the Emeryville, Calif., biopharmaceutical company for $40 a share. In order to claim the remaining roughly 58% stake, Novartis will need to buy about 112 million Chiron shares.

Chiron shares shot up 18% to $43.15 after the $4.5 billion offer was revealed. The stock hasn't reached the $40 level since Chiron's announcement last fall that it couldn't provide the Fluvirin vaccine to the U.S. because of problems at its manufacturing plant in Liverpool, England.

Considering the stock is now fetching more than the offer price, it suggests investors think this might not be the last and best bid. Novartis' offer price represents a premium of just under 10% to Chiron's Wednesday close at $36.44. During the last 52 weeks, Chiron has traded in a range of $29 to $46.

According to Geoffrey Porges, an analyst with Bernstein Research, Chiron should be getting a 20% to 25% premium to the current price, meaning about $44 to $45 a share. Porges said in a telephone interview that given the size of its current stake in Chiron, Novartis doesn't expect another company to make a better overture.

"Novartis is taking advantage of a window of investor sentiment changes, bidding at the very lowest end in the biotech space," Porges added.

Chiron is three to six months away from the beginning of a recovery, Porges believes. But while investors have been trading on the news surrounding Fluvirin in recent months, Chiron's turnaround should be driven by the testing and pharmaceuticals businesses, he said.

Other analysts said Novartis wants to buy Chiron in order to expand its business to include vaccines, blood testing and biopharmaceuticals.

Just Wednesday, Chiron said its Liverpool plant

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passed a Food and Drug Administration inspection that deemed the operation "generally acceptable." That means Chiron could continue manufacturing at the plant for the 2005-2006 flu season.

The FDA plans to continue monitoring production at the plant for vaccine safety and to determine how much Fluvirin the agency will allow in to the U.S.

Chiron said its board, excluding three Novartis-appointed directors, will "thoroughly evaluate the offer in due course" with the assistance of the company's financial advisers Morgan Stanley and Credit Suisse First Boston.

Novartis said it will try to negotiate a merger agreement with the independent Chiron directors that would require the approval of a majority of the Chiron shares not owned by Novartis. The company also said the Chiron transaction "could be completed promptly," but there's no assurance that an agreement will be reached.

"While the stock has recently traded in the mid $30's based on flu vaccine production concerns and over-investment in operating expenses and questionable R&D," Porges wrote in a research note Thursday, "the core businesses of testing and biopharmaceutical remain sound, and there is emerging upside in the company's early stage biopharma portfolio and new range of blood testing products soon to be approved."

Porges rates the stock a market perform, and he sees the shares reaching $44. Bernstein makes a market in Chiron shares.

Should the deal close, it would be the latest in a string of mergers in the biotech and pharmaceutical universe in recent months.

Earlier this year, Novartis bought Eon Labs and German drugmaker Hexal AG.

Shire Pharmaceuticals


recently bought Transkaryotic Therapies.


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has offered to acquire



, and


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is planning to take over

Vicuron Pharmaceuticals