Digital River likely to recover; Onyx seen on deal sidelines; PepsiCo delays not expected

By Cristal Cody

Tupelo, Miss., Oct. 12 - Digital River, Inc.'s stock dropped more than 40% in trading on Monday after major client Symantec Corp. said it will cancel an e-commerce contract to manage its own online traffic.

While the move is a "big blow" to the company, Digital River and the stock should rebound, an analyst told Prospect News.

In other situations, Onyx Pharmaceuticals, Inc. will look for U.S. partners to market potential drugs but otherwise will focus on its latest acquisition announced on Monday, Onyx president and chief executive officer N. Anthony Coles told analysts and investors on a conference call.

Coming up on Thursday, PepsiCo, Inc. plans to refile its antitrust application with the Federal Trade Commission for the $7.8 billion acquisition of its two largest bottlers. Still, regulatory risks to the deal's closing remain low, analysts said Monday.

Meanwhile, equities were mixed Monday on the Columbus Day holiday, but the Dow Jones Industrial Average set a new 2009 high.

The Dow added 20.86 points, or 0.21%, to close at 9,885.80.

The Standard & Poor's 500 index rose 4.69 points, or 0.44%, to 1,076.18, while the Nasdaq Composite index dipped 0.14 of a point, or 0.01%, to 2,139.14.

Digital River takes sales hit

Digital River shares closed down $13.97, or 34.56%, at $26.45 on Monday.

The company said in a statement on Monday that information security firm Symantec plans to create an in-house e-commerce system to manage its own online traffic before its contract with Digital River expires on June 30, 2010.

Eden Prairie, Minn.-based Digital River said Symantec represents about 30% of the company's sales and profit.

"We are surprised and deeply disappointed that Symantec has chosen to move to an internally developed system, but we remain very confident in the future of our business," Joel Ronning, Digital River's chief executive officer, said in a statement.

"While Symantec is still our largest customer, the proportion of Symantec revenues relative to our other customers has declined significantly over the past few years as our non-Symantec business has grown at an increasing rate," he said. "Our company is financially strong, our new business pipeline remains healthy, and sales activity in the software, consumer electronics and business-to-business sectors continues to grow."

Robert Breza, an analyst with RBC Capital Markets Corp., said in an interview on Monday that the news was a temporary setback.

"They'll be able to recover - it's just a question of how long," he said. "It's a good company, and they're going to survive. This is just a big blow, and it's fairly sudden, and that's why you see the shock in the stock."

Although Cupertino, Calif.-based Symantec plans to process its e-commerce business internally, it's unlikely other Digital River customers will follow suit, Breza said.

"It's very unique, but I don't think it has a bearing on other companies that do business with Digital River. Their value to the process remains," he said. "Symantec has a lot of hard work in front of them to duplicate what Digital River has done for them."

Symantec's stock lost 20 cents, or 1.20%, to $16.43.

Oncology deals pick up

Onyx Pharmaceuticals said Monday that it will acquire privately held biopharmaceutical company Proteolix, Inc. for $276 million in cash and future conditional payments.

South San Francisco, Calif.-based Proteolix's lead potential drug compound, carfilzomib, is being tested as a blood cancer treatment.

Onyx said it also would pay Proteolix $40 million in 2010 based on the achievement of a development milestone and up to $535 million upon regulatory approvals for carfilzomib in the United States and Europe, including $170 million for accelerated Food and Drug Administration approval.

Emeryville, Calif.-based Onyx expects FDA approval for carfilzomib to take up to 36 months.

Onyx plans to focus its deal attention on the newly acquired drug compound, Coles, Onyx's CEO, said on the conference call.

"We've demonstrated a lot of success in licensing and putting together some creative deals," Coles said. "Our primary focus has to be now on carfilzomib and bringing carfilzomib to the market ... and on getting carfilzomib in the hands of regulators. We will be looking for U.S. partners to take on any assets we have and in order to supplement our original intent, but the focus now is on carfilzomib."

The acquisition of Proteolix is expected to close in the fourth quarter, subject to antitrust clearance under the Hart-Scott-Rodino Act.

Onyx shares closed up $1.36, or 5.06%, at $28.26 on Monday.

FTC studies Pepsi buyouts

PepsiCo said in a statement after the market closed on Friday that it would refile its antitrust application with the FTC for the acquisition of Somers, N.Y.-based Pepsi Bottling Group Inc. and Minneapolis-based PepsiAmericas Inc.

The company said it withdrew the application to allow the FTC additional time to review the deal. Under the new application, the waiting period is expected to expire on Nov. 16.

PepsiCo has offered $36.50 per share in cash or stock for Pepsi Bottling and $28.50 per share in cash for PepsiAmericas.

Purchase, N.Y.-based PepsiCo said it continues to expect to close both transactions by late 2009 or early 2010.

The new regulatory application should not delay the deal much, Pali Capital Inc. analysts said Monday in an investors note.

"Our core view of the transaction remains unchanged: we consider the risks related to regulatory and shareholder approvals as low," the analysts said. "The main issue for the two transactions is the timing of the deal closing: we are still targeting closing by end of January 2010."

Shares of the bottlers traded Monday above the offers, though the deal spread is expected to widen a bit, the analysts said.

"The gross deal spreads are currently in line with other low-risk deals," the analysts said.

Shares of Pepsi Bottling slipped 1 cent, or 0.03%, to $37.25 on Monday, while shares of PepsiAmericas added 3 cents, or 0.10%, to $29.17.

PepsiCo shares rose 33 cents, or 0.54%, to $60.92.

Mentioned in this article:

Digital River, Inc. Nasdaq: DRIV

Onyx Pharmaceuticals, Inc. Nasdaq: ONXX

PepsiAmericas Inc. NYSE: PAS

Pepsi Bottling Group Inc. NYSE: PBG

PepsiCo, Inc. NYSE: PEP

Symantec Corp. Nasdaq: SYMC

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.