Updated from 6:42 a.m. ESTSeven weeks after it rejected a Novartis ( NVS) buyout bid as inadequate, Chiron ( CHIR) accepted a sweetened offer worth about $5.1 billion. The new bid from Novartis is $45 a share -- up from $40 a share offered in early September -- for the 58% of Chiron that the Swiss drug giant doesn't own. Monday's new offer represents a premium of less than 4% from Chiron's closing price on Friday and a 23% premium to Chiron's closing price on Aug. 31, the day before Novartis offered $40 a share. The new proposal tops the old bid by about $565 million. The companies expect the deal to close during the first half of next year. The offer must be approved by a majority of the non-Novartis shareholders in Chiron, as well as by U.S. and European regulators. About 113 million Chiron shares aren't held by Novartis. The announcement was viewed on Wall Street as an answer to the questions "when" and "how much" rather than "if." After Novartis made its $40 a share bid, Chiron's stock bounced above, and stayed above, that level, prompting analysts to predict that Novartis would raise its offer. Alternative scenarios included the prospect of another company making a bigger bid or Chiron being broken up in pieces that might be worth more than the whole. The Novartis bid was the simplest choice. Chiron's directors, excluding the three Novartis designees who didn't vote, supported the $45 a share offer unanimously. "As stated in our note following the $40 a share bid, we did not expect Novartis to offer a significant premium for Chiron's shares," says David Molowa of UBS Securities in a Monday research note. He doesn't own shares, but his firm has had an investment banking relationship with both companies. He has a buy rating on Novartis, and he raised his rating on Chiron to neutral from reduce.
Chiron's shares rose 84 cents, of 1.9%, to $44.24, while Novartis' stock gained 32 cents to $53.72. The acquisition would vault Novartis into the vaccine business, as well as add a blood-testing division and some pharmaceuticals. The vaccine and blood-testing units will operate as a separate division, and the biopharmaceuticals business would be absorbed by the Novartis prescription drug division. Chiron is the world's fifth-largest vaccine producer. Chiron's biopharmaceuticals offer "few but interesting assets," Novartis says. The blood-testing business has a "strong position in a consolidated market" as well as "attractive margins." Vaccines have "high growth potential." Novartis executives said they expect the deal to produce cost-savings of $200 million within three years of closing. Such savings, half of which could be achieved in 18 months, will come from the reduction in corporate overhead and administration and the assimilation of the biopharmaceuticals unit, Novartis said. Novartis didn't say how many of Chiron's 5,400 employees would lose their jobs, and it didn't say if top managers would remain. Dr. Daniel Vasella, Novartis' chief executive, told analysts Monday that he and his board of directors will choose a leader for the new vaccine-blood testing unit within two weeks. "Our plan is to turn around the Chiron vaccines business, which will require investments in R&D and manufacturing to increase quantity and capacity," Vasella said. Chiron's flu-vaccine manufacturing woes are well known. Last year, on the eve of the U.S. flu season, the license for the company's Liverpool, England, flu-vaccine plant was suspended by British health regulators because of manufacturing and contamination problems. The company had been expected to provide about half of the U.S. flu vaccine for the 2004-2005 season. Instead, it didn't provide any. The plant's license was reinstated earlier this year,
but regulatory and manufacturing delays have led to Chiron producing far less flu vaccine for the U.S. market than it had expected. The company says it expects to return to full manufacturing capacity for the 2006-2007 U.S. flu season.
manufacturing problems at a German plant forced Chiron to give up on selling another flu vaccine for European markets this year. Vasella told analysts during a telephone conference call that "it would be logical" to have a vaccine-manufacturing plant in the U.S., but that decision would depend on the company's discussions with the federal government. "If they make it attractive," Novartis would proceed, he said. Vasella didn't provide details. Chiron makes more than flu vaccine. Its preventive products guard against such diseases as rabies, polio, mumps, measles, rubella and whooping cough. The company's prescription drugs include antibiotics, a treatment for multiple sclerosis and a drug for kidney cancer.