Human Genome Sciences (NASDAQ:HGSI) is now facing new pressures over its “poison pill” and their resistance to a GlaxoSmithKline plc (NYSE:GSK). As of today, a Human Genome shareholder has filed a lawsuit against the board of directors who have implemented the “poison pill” to help avoid being taken over.
Back in April, GlaxoSmithKline offered $2.6 billion for Human Genome, but the offer was rejected. Glaxo then came back with a tender offer which gave Human Genome the need to use a poison pill about two weeks ago and the trigger is if Glaxo acquires 15% of Human Genome’s shares.
Here is what the shareholder’s case was against Human Genome:
“Defendants, rather than negotiating in good faith with GSK and any other potential bidders, or taking any and all necessary steps to permit the Company’s shareholders to decide for themselves whether to accept offers for their shares, instead violated their fiduciary duties by rejecting GSK’s offer outright and implementing and/or maintain in place certain defensive devices, including the Poison Pill, that effectively hold the Company’s shareholders hostage to the board,” the suit states (WSJ).
When it comes to valuation, we now know that Human Genome’s board of directors are picky. They believe that $13 a share is undervaluing the stock’s potential future growth. This is what gave them the idea to have a safety net in the poison pill.
As you can imagine, there is a small battle brewing. Glaxo has told Human Genome to drop the pill or drop the acquisition. The firm’s tender offer is still valid until midnight on June 7th. This will be the last point at which this acquisition can be made.
The reasoning behind the tension is the fact that both companies sell the new Lupus drug, Benlysta together. This is supposed to be a home run drug but Glaxo wants all the profits not just half. The only way to get the other half is to buyout their partner, Human Genome.
I do agree that the $13 offer is a bit cheap for Human Genome but I also do not think they are far off from that level. Certainly the company is worth more than $13 but I would say no more than $16.
The bottom line is that Human Genome has until midnight June 7th to make a deal or not. Ultimately, Glaxo does not need this acquisition to be successful. Can the same be said about Human Genome?