MedImmune deal rekindles buzz of biotech buyouts; Genesco gains; Vonage eyed

By Ronda Fears

Memphis, April 23 - MedImmune Inc. caught a buyout bid of $15.6 billion from British pharmaceutical giant AstraZeneca plc at a whopping premium to where the stock was trading before the biotech firm went on the auction block.

The news sent other biotechs with recent activist shareholder action higher and rehashed a lot of the "usual suspects" that are considered takeover targets in the biotech space, traders said. For instance, Xoma Ltd. was up big, but one trader said he was hearing a definite deal in the works with biotech giant Genentech Inc.

There was one big loser in the AstraZeneca news, however. AtheroGenics Inc. fell sharply after the drug major announced it would cease future development of the prospective heart drug AGI-1067 after multiple trial failures.

AtheroGenics said it will pursue development of the drug, but traders said players were exiting the story rapidly on a lack of faith that it will find another deep-pocket partner. The company had been a high-flyer in biotech circles on hopes of getting a buyout offer; the stock hit a 52-week high of $20.03 in mid-February after reporting narrowed losses for first quarter. On Monday, the stock (Nasdaq: AGIX) dropped 56 cents, or 15.34%, to close at $3.09.

Elsewhere, apparel retailer Genesco Inc. continued to gain Monday after saying its board rejected Foot Locker Inc.'s hostile $1.2 billion buyout offer. Traders said there was some profit taking by some who think Genesco will not relent to a buyout, while buyers think there will be enough pressure to force the company to take it.

Otherwise, bankrupt stocks and companies with a threat of bankruptcy hanging over them were higher, particularly power firms Mirant Corp. and Calpine Corp. along with gym operator Bally Total Fitness Holding Corp.

Vonage slump builds interest

Vonage Holdings Corp., however, was a big loser in the session amid a sell-off continuing from the past month that really has a genesis dating back to when the voice-over-internet protocol phone service went public just shy of a year ago.

The stock (NYSE: VG) lost 10 cents on the day, or 3.34%, to $2.89 - a far cry from the $17 where it debuted in an initial public offering in May 2006. On their first day of trade, May 24, 2006, Vonage shares sank 13%.

Yet, the stock got a big bounce at the top of the last hour of trade, and a big buyer was seen after the close, one trader remarked.

"First, it was just another panic Monday for Vonage; there is a trend of trading it down on Monday," the trader said.

"The outcome of its appeal hearing, which is tomorrow [Tuesday], is key, but there are some people who think the company will get assistance from its banks, that they will bail it out or take control of it in bankruptcy."

Last week, Vonage warned that it could face bankruptcy as the VoIP start-up's problems worsen due to ongoing patent litigation with phone giant Verizon Communications Inc. Vonage was ordered last month to pay $58 million plus royalties on future sales to Verizon, losing arguments on three Verizon patents.

Citigroup was the lead underwriter of the Vonage IPO. Other bankers on the deal were Bear Stearns, Deutsche Bank, Piper Jaffray, UBS Investment Bank and Thomas Weisel Partners.

The trader said he thinks those desks "probably had to buy a boat load of those shares back from clients when it tanked, and are probably still holding a lot of it." Thus, he added, they would be "motivated to keep Vonage afloat."

Then again, he continued, it could be the banks building positions to have a better stake should Vonage file bankruptcy. "That would be to your advantage if the banks seize control of this thing," he commented.

MedImmune boon to others

MedImmune's acquisition, largely attributed to pressure from noted activist investor Carl Icahn, was a boon to the biotech sector. The buyout price from AstraZeneca at $58 per share was a 20.8% premium to Friday's market and a 53% premium to MedImmune's stock price April 11, the day before news broke that it was for sale.

Market rumors were that there were four bidders for MedImmune, which is why AstraZeneca had to pay so much, traders said. But the market figured the bidding war would not continue beyond the deal announcement. MedImmune shares (Nasdaq: MEDI) gained $8.56 on the day, or 17.83%, to close at $56.57, just shy of the price tag.

It did, however, trigger gains for several other biotechs considered to be prime takeover targets.

"MedImmune was dead in the water for years. It took a large stockholder to get the stock up to worth," one trader remarked.

Those with recent activist stockholder action were high on the list, such as PDL BioPharma Inc., he said. PDL BioPharma shares (Nasdaq: PDLI) advanced 78 cents, or 3.23%, to $24.91.

For months, PDL BioPharma has been under pressure from its largest shareholder Third Point LLC, led by Daniel S. Loeb, who has called for chief executive Mark McDade to resign; Loeb has suggested splitting the company into separate commercial and research entities, and also has intimated that PDL BioPharma turned down a takeover offer of $30 per share.

Vical Inc. and Biogen Idec Inc. also were big gainers in the biotech sector.

"There was really nothing new here for the most part," another trader said.

"The MedImmune headlines hit and whenever something like this happens, all the usual suspects, names we've heard in the rumor mill for months now, take a leap."

With regard to Xoma, however, a third trader said the market buzz seemed to be locked into a more sure-fired deal, with Genentech. The two are partners on the drug Raptiva for chronic moderate-to-severe plaque psoriasis.

Xoma shares (Nasdaq: XOMA) gained 39 cents on the session, or 11.71%, to $3.72.

Genesco kicks out Foot Locker

Genesco continued to gain after the apparel retailer on Monday said its board rejected Foot Locker Inc.'s unsolicited $46-per-share buyout offer.

The stock (NYSE: GCO) climbed well past the offer, ending Monday at $50.56 for a gain of 58 cents on the day, or 1.16%. It hit another new 52-week high, having done so on Friday when Foot Locker went public with its buyout offer.

Genesco chief executive Hal Pennington said the $46 offer "is clearly not in the best interests of our shareholders" in a letter to Foot Locker CEO Matthew Serra. But, he also said that in initial discussions about a takeover, Serra offered $48 to $50 a share and also said, "Of course, we can go higher."

"That fueled a lot of furor about a better offer," one trader said.

Rumors of a takeover bid for Nashville-based Genesco by New York-based Foot Locker have lingered in trade publications for over a month to no avail, another trader said.

"Just because they [Foot Locker] want a deal doesn't mean they are going to get one," said a buyside trader. "Genesco has been pretty adamant they don't want a deal."

Foot Locker shares (NYSE: FL) dropped 30 cents on Monday, or 1.24%, to $23.91.

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