Centennial buyout could let AT&T walk; Emulex auction expected; major pharma mergers predicted

By Cristal Cody

Tupelo, Miss., April 23 - AT&T Inc.'s $8.50-per-share cash acquisition of Centennial Communications Corp. should close by late June but still retains risk given AT&T's ability to walk, an analyst said Thursday.

Meanwhile, a market source said Thursday that Emulex Corp. likely will reject Broadcom Corp.'s $764 million offer and launch an auction for the company.

Shares of Omnicare Inc. fell a second straight day on Thursday as rumors subside of a potential takeover.

Also on Thursday, London-based URCH Publishing made a few predictions on which pharmaceutical companies will be the next takeover targets.

On Wall Street, the Dow Jones Industrial Average added 70.49 points, or 0.89%, to close at 7,957.06.

The Standard & Poor's 500 index rose 8.37 points, or 0.99%, to 851.92, and the Nasdaq Composite index gained 6.09 points, or 0.37%, to end Thursday at 1,652.21.

AT&T could walk

AT&T's acquisition of Wall, N.J.-based Centennial must be approved by the Federal Communications Commission and the Department of Justice.

"Under the merger agreement, AT&T is not obliged to accept any conditions to regulatory approvals," an analyst said Thursday. "We believe that this gives AT&T some leeway in rejecting any conditions imposed by the FCC or DOJ."

The FCC has received complaints on the communication companies' overlap in Mississippi and Louisiana, but the deal should ultimately be approved, the analyst said.

Dallas-based AT&T's stock added 8 cents, or 0.31%, to close at $25.48 on Thursday, while Centennial shares closed unchanged at $8.29.

Emulex targeted

Irvine, Calif.-based Broadcom, which makes semiconductor chips for communications equipment, made its hostile offer on Tuesday to buy Emulex for $9.25 a share in cash, which represents a 40% premium to the stock's closing price on Monday.

Costa Mesa, Calif.-based Emulex makes data networking storage products.

"In our view Emulex's board has a duty to play auctioneer and to secure the highest immediate price for the common stock of the company," an analyst said Thursday. "We would value Emulex as a takeover target at $10.20 [to] $11.20."

Broadcom said it first approached Emulex about a deal in December but in January was told the company is not for sale.

Emulex's board is reviewing the proposal.

Shares of Emulex lost 11 cents, or 1.09%, to close at $10.02 on Thursday.

Broadcom's stock rose 74 cents, or 3.27%, to $23.35.

Omnicare shares slide

Omnicare representatives did not return messages for comment.

Shares of Omnicare, a Covington, Ky., geriatric pharmaceutical services company, rose more than 8% last week on speculation that drugstore chain Walgreen Co. may bid for the company.

The company often is mentioned as a potential acquisition target, an analyst told Prospect News.

Omnicare shares lost 30 cents, or 1.13%, to close at $26.18 on Thursday.

Shares of Deerfield, Ill.-based Walgreen closed down 51 cents, or 1.71%, at $29.35.

Pharma merger predictions

Eli Lilly & Co., GlaxoSmithKline plc, Bristol-Myers Squibb Co. and Basel, Switzerland-based drug maker Novartis AG are some of the top deal candidates, according to URCH report "Mergers and Acquisitions in the Pharmaceuticals Sector, 2009 - Critical success factors for competing in a consolidating market."

"The two most likely deals appear to be the acquisitions of Bristol-Myers and Bayer [AG]," Steve Seget, the report's author, said in a statement Thursday. "Currently, the best placed acquisitors appear to be Sanofi-Aventis SA and Novartis, but we should not rule out Johnson & Johnson or GlaxoSmithKline, if its acquisition of Allergan Inc. does not come to fruition."

A market source said Thursday that New York-based Bristol Meyer's need to make an acquisition is high given the company's "weak pipeline and substantial patent expirations."

Indianapolis-based Eli Lilly's need also is high because of substantial patent expirations, the source said.

New Brunswick, N.J.-based Johnson & Johnson could look for deals, but the company has "a low need to make acquisitions given that they face low patent expirations and have a good pipeline," the source said.

Almost all of the pharma stocks closed up on Thursday.

Eli Lilly's stock rose 14 cents, or 0.43%, to $32.88; Bristol-Myers Squibb shares rose 36 cents, or 1.82%, to $20.17; Irvine, Calif.-based Allergan shares gained 21 cents, or 0.45%, to $46.81; Johnson & Johnson's stock added 22 cents, or 0.43%, to $51.40; and shares of Paris-based drug maker Sanofi-Aventis closed up 34 cents, or 1.30%, at $26.55.

Also, Novartis shares jumped $1.36, or 3.84%, to close at $36.78 despite a 14% drop in reported first-quarter profit on Thursday.

Meanwhile, shares of Brentford, England-based GlaxoSmithKline fell 18 cents, or 0.61%, to close at $29.11 on Thursday.

Mentioned in this article:

Allergan Inc. NYSE: AGN

AT&T Inc. NYSE: ATT

Bayer AG Frankfurt: BAYG

Bristol-Myers Squibb Co. NYSE: BMY

Broadcom Corp. Nasdaq: BRCM

Centennial Communications Corp. Nasdaq: CYCL

Eli Lilly & Co. NYSE: LLY

Emulex Corp. NYSE: ELX

GlaxoSmithKline plc NYSE: GSK

Johnson & Johnson NYSE: JNJ

Novartis AG NYSE: NVS

Omnicare Inc. NYSE: OCR

Sanofi-Aventis SA NYSE: SNY

Walgreen Co. NYSE: WAG

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