Noven deal may trigger Novartis interest; Exelon likely to bid again; IPC stock spread grows

By Cristal Cody

Tupelo, Miss., July 14 - Shares of Noven Pharmaceuticals, Inc. soared on a $428 million buyout offer from Japanese firm Hisamitsu Pharmaceutical Co., Inc., but Noven's joint venture with Novartis Pharmaceuticals Corp. could disrupt the deal, an analyst said in an interview Tuesday.

On the hostile front, Exelon Corp. is predicted to increase its offer for NRG Energy, Inc. at least once more before walking away from the $8 billion merger attempt, an analyst told Prospect News on Tuesday.

In other situations, a spread in shares of IPC Holdings, Ltd. and the $1.65 billion buyout offer from Validus Holdings, Ltd. is driven by concerns of a hurricane or catastrophic event that could affect the Bermuda reinsurers, a market source said Tuesday.

Meanwhile, stocks extended gains for a second straight day. The Dow Jones Industrial Average rose 27.81 points, or 0.33%, to close at 8,359.49.

The Standard & Poor's 500 index gained 4.79 points, or 0.53%, to close at 905.84, and the Nasdaq Composite index closed up 6.52 points, or 0.36%, at 1,799.73.

Fair bid for Noven

Noven Pharmaceuticals said Tuesday it accepted Hisamitsu's offer of $16.50 per share in cash, which represents a 22.00% premium to Noven's closing stock price on Monday.

Noven shares climbed $3.00, or 22.26%, to close Tuesday at a new 52-week high of $16.48. Shares had traded from $7.54 to $14.88 over the past year.

Hisamitsu, which currently beneficially owns 1.24 million, or 4.90%, of Noven outstanding shares, plans to start a tender offer for the shares by July 28.

"In Noven, we believe we have found the ideal catalyst to accelerate Hisamitsu's strategic objective of increasing our U.S. presence," Hirotaka Nakatomi, president of Hisamitsu, said in a statement.

The merger agreement was unanimously approved by the boards of directors of Noven and Hisamitsu.

The companies expect that Miami-based Noven, a specialty prescription pharmaceutical company, will continue as a standalone business unit at its Miami and New York locations.

Tosu, Japan-based Hisamitsu develops and markets over-the-counter pharmaceutical products.

Robert M. Wasserman, an analyst with Dawson James Securities Inc., said the transaction lacks any regulatory concerns because of little product overlap between the two companies.

"It's a fair offer, and given the environment the last year or so, it should be accepted," he said. "There may be a few shareholders who two or three years ago would not have been happy, but given where the stock has been the last few weeks, they should accept it."

However, there's a potential spoiler to the deal, he said.

Noven operates the Novogyne Pharmaceuticals joint venture with Novartis Pharmaceuticals, a U.S. affiliate of Swiss health-care product giant Novartis AG, to sell hormone therapy systems for women.

"It's possible that Novartis will have something to say because of the joint venture," Wasserman said. "They could certainly make a competing offer, plus they have a vested interest in the women's health care business."

Novartis' American Depositary Shares fell 6 cents, or 0.15%, to close at $39.75.

Exelon bides time

Chicago-based Exelon has said it will walk away from the offer if NRG shareholders do not vote its way at the annual meeting on July 21.

On Monday, NRG reported that four leading proxy advisory firms have recommended shareholders reject Exelon's nominees to the board and its proposal to expand the board to 19 seats.

RiskMetrics Group Inc., Proxy Governance, Inc., Glass, Lewis & Co. and Egan-Jones Proxy Services also recommended shareholders re-elect NRG's nominees.

An analyst told Prospect News on Tuesday the nation's largest nuclear company is likely to hang on for a bit longer in the fight to acquire Princeton, N.J.-based NRG.

NRG has rejected Exelon's latest all-stock bid of 0.545 of a share for each NRG share as too low.

"If I'm Exelon, I don't know if I would up the offer just yet," the analyst said.

"I would wait to see what happens at the meeting and at that point, maybe raise the offer. The biggest thing [to watch] will be the Aug. 21 tender that expires," the analyst said. "At that point, you may see Exelon walk away, but I would be inclined to believe they would up the offer once more."

Many NRG stockholders believe shares are worth at least $30.00 each, the analyst said.

"The deal puts it now at $27.25 [per share]," the source said. "Clients are calling up and looking at the spread. They're seeing a 10.00% spread right now, which is saying the current offer for Exelon is not adequate enough."

NRG's stock jumped $1.22, or 5.16%, to close Tuesday at $24.85. Shares have traded from $14.39 to $39.98 over the past year.

Exelon shares closed up 55 cents, or 1.11%, at $50.08.

Cloudy future for IPC

IPC agreed on Thursday to a sweetened offer from Validus for $7.50 in cash and 0.9727 of a share of Validus for each IPC share in a deal valued at $29.48 per share.

IPC shares rose 7 cents, or 0.26%, to close at $27.49 on Tuesday.

"In our view, the current 3.50% gross spread reflects investors' concerns regarding the potential effect of the upcoming hurricane season on the outcome of the deal," a market source said Tuesday.

"This implies an estimated 20.00% probability of the deal breaking," the source said. "The spread could even widen further if a hurricane hits the gulf, as the valuation metrics of the deal may change for Validus shareholders."

Pembroke, Bermuda-based IPC provides property catastrophe reinsurance to personal and commercial property insurers for hurricanes, storms, earthquakes and other disasters.

Validus, based in Hamilton, Bermuda, provides reinsurance and insurance coverage in the property, marine and special lines markets.

The deal should close by mid-September barring any catastrophic storms, the market source said.

"We expect both sets of shareholders to approve the transaction," the source said. "However, in the event of a natural catastrophe, there could be a way out for both sets of shareholders by potentially voting down the amalgamation agreement."

The companies expect the transaction to close in the third quarter.

Shares of Validus added 10 cents, or 0.46%, to close at $21.62 on Tuesday.

Mentioned in this article:

Exelon Corp. NYSE: EXC

IPC Holdings, Ltd. Nasdaq: IPCR

Novartis AG NYSE: NVS

Noven Pharmaceuticals, Inc. Nasdaq: NOVN

NRG Energy, Inc. NYSE: NRG

Validus Holdings, Ltd. NYSE: VR

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