Wyeth buyout expected to clear foreign reviews; Emulex, IPC get slim chances for other bids

By Cristal Cody

Tupelo, Miss., July 1 - A market source said Wednesday that the European Commission's referral of Pfizer Inc.'s acquisition of Wyeth for a phase I review is positive since full second-phase reviews are rare, and the transaction could close as early as September.

A market source said Wednesday that Emulex Corp.'s best choice for a "white knight" in its fight to hold off hostile bidder Broadcom Corp. is Juniper Networks, Inc., which launched its own data center project to compete with Cisco Systems, Inc.

Kenneth L. Hammond, chairman of IPC Holdings, Ltd., said Wednesday that the Bermuda reinsurance provider is in discussions with several potential acquirers, including hostile bidder Validus Holdings, Ltd.

However, IPC is unlikely to secure any deals with other parties because of the timing of the hurricane season and the potential for insured losses and because of Validus' intimidating tactics, an analyst told Prospect News.

Meanwhile, investors sent stocks up at the start of the third quarter. The Dow Jones Industrial Average added 57.06 points, or 0.68%, to close at 8,504.06.

The Standard & Poor's 500 index gained 4.01 points, or 0.44%, to 923.33, and the Nasdaq Composite index rose 10.68 points, or 0.58%, to 1,845.72.

Regulators eye Pfizer, Wyeth

The deadline for the European Commission, which oversees competition in the European Union, to conduct the extended phase I review of Wyeth's buyout is July 20.

"We believe that the remedies submitted by Pfizer and Wyeth are the result of extensive conversations with the E.U. and are therefore likely to sufficiently address any competition concerns," a market source said Wednesday. "Wyeth and Pfizer appear to have been managing the regulatory approvals well after submitting remedies in the E.U. and in Australia."

The merger also requires regulatory approvals in China, Canada and South Africa.

"Although foreign competition approvals could potentially delay the mergers, we would assign a low probability to such a scenario," the source said. "We believe that the transaction could potentially close as early as the end of September."

Wyeth and Pfizer have said the transaction likely would require animal health divestitures under regulators' reviews.

Wyeth and Pfizer told the Australian Competition & Consumer Commission the companies intend to divest and license animal health products in Australia to a third party, according to a statement on the commission's web site.

The commission said it would set a decision date for its review "upon receipt of a draft undertaking from Pfizer relating to a number of animal health products which Pfizer proposes to divest."

New York-based Pfizer made the $68 billion cash-and-stock offer of $33.00 in cash and 0.985 of a share of Pfizer stock for Madison, N.J.-based Wyeth in January.

Pfizer and Wyeth expect the transaction to close by the fourth quarter.

Wyeth's stock shed 2 cents, or 0.04%, to close at $45.37 on Wednesday.

Shares of Pfizer fell 10 cents, or 0.67%, to $14.90.

Emulex's three choices

Emulex has three choices - negotiate with Broadcom, "find a white knight" or stay independent, a market source said Wednesday.

"Given the current improvement in Broadcom's bid price, Emulex may now be willing to enter into negotiations," the source said.

On Monday, Broadcom increased its cash bid for Emulex to $912 million, or $11.00 a share, from $764 million, or $9.25 a share.

Broadcom could offer up to 7.00% more if Emulex gives Broadcom access to key company data, the source said.

"Given that Emulex is incorporated in Delaware, Broadcom's hostile offer is unlikely to be successful absent an agreement from Emulex's board," the source said.

One company stands out as a distinct possibility for a potential combination with Emulex, the market observer said.

"Juniper Networks is probably the most likely white knight for Emulex," the source said.

The Sunnyvale, Calif.-based network infrastructure developer "has sufficient cash to enter into a bidding war with Broadcom," the source said.

Other potential acquirers, including Cisco, Hewlett-Packard Co., International Business Machines Corp. and Marvell Technology Group, Ltd., are unlikely to enter a bidding war, the market source said.

"Given current market conditions, we would assign a 40.00% probability of Broadcom and Emulex agreeing to a deal, a 40.00% probability to Broadcom's walking and a 20.00% probability to Emulex's finding a white knight," the source said.

Irvine, Calif.-based Broadcom said it will let its tender offer expire on July 14 if Emulex's board does not give support.

Broadcom, a semiconductor company, first launched its tender offer for Emulex, a Costa Mesa, Calif.-based data network storage manufacturer, on May 5.

Emulex has said it would review the revised bid.

Shares of Emulex added 4 cents, or 0.41%, to close at $9.82 on Wednesday.

Broadcom's stock closed up 28 cents, or 1.13%, at $25.07.

Juniper Networks' stock rose 81 cents, or 3.43%, to $24.41, while Armonk, N.Y.-based IBM shares gained 42 cents, or 0.40%, to close at $104.80.

Shares of San Jose, Calif.-based Cisco rose 15 cents, or 0.80%, to $18.80, and Palo Alto, Calif.-based Hewlett-Packard shares rose 3 cents, or 0.80%, to $38.68.

Bermuda-based Marvell shares closed up 10 cents, or 0.86%, at $11.74.

Validus too 'pushy'

IPC's board of directors said Wednesday that it will set a date for a special shareholders meeting after Validus succeeded in convincing the holders of 54.00% of IPC shares to submit requisitions for the meeting to attempt to replace IPC's board.

Hammond, IPC's chairman, said in a statement Wednesday that the company will set a date after consulting with its advisers.

"The board continues to work on behalf of the IPC shareholders to encourage offers representing more value to shareholders than Validus' current offer, which is 19.00% below IPC's book value and is only a 4.00% premium over our current stock price," Hammond said. "At the same time, we are continuing to work with Validus and we have encouraged Validus to increase its offer price."

Bermuda-based Validus has said it does not plan to raise its offer of $3.75 in cash and 1.1234 Validus shares for each IPC share.

IPC is unlikely to attract other suitors for a bidding contest with Validus because "Validus has been pushy about the whole situation," an analyst who follows IPC said Wednesday. "A lot of people don't want to get into it because of that. Also the timing right now - we're in hurricane season."

IPC had planned to merge with Bermuda specialty insurer Max Capital Group Ltd., but shareholders voted down the proposal in June.

Validus' exchange offer for IPC shares expires on Monday.

IPC's stock closed up 43 cents, or 1.57%, at $27.77 on Wednesday.

Shares of Validus added 37 cents, or 1.68%, to end trading at $22.35.

Mentioned in this article:

Broadcom Corp. Nasdaq: BRCM

Cisco Systems, Inc. Nasdaq: CSCO

Emulex Corp. NYSE: ELX

Hewlett-Packard Co. NYSE: HPQ

International Business Machines Corp. NYSE: IBM

IPC Holdings, Ltd. Nasdaq: IPCR

Juniper Networks, Inc. Nasdaq: JNPR

Marvell Technology Group, Ltd. Nasdaq: MRVL

Max Capital Group Ltd. Nasdaq: MXGL

Pfizer Inc. NYSE: PFE

Validus Holdings, Ltd. NYSE: VR

Wyeth NYSE: WYE

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