Sun deal awaits European review; Coca-Cola unlikely to buy bottlers; Patheon wants new partner

By Cristal Cody

Tupelo, Miss., Aug. 21 - While the U.S. Department of Justice gave early termination to Oracle Corp.'s $7.40 billion acquisition of Sun Microsystems, Inc., the European Commission's approval could prove to be a lengthy hurdle, an analyst said Friday in an interview.

Also on Friday, Fitch Ratings said Coca-Cola Co. is unlikely to follow rival PepsiCo, Inc.'s plans to acquire its beverage bottlers.

Lauren Torres, an analyst with HSBC Securities (USA) Inc., said in a research note released Friday to Prospect News that Coca-Cola believes its business model is the best structured to manage through challenging market conditions.

In other situations on Friday, private equity investment firm JLL Partners, Inc. said no to Lonza Group AG's offer of $3.55 a share for the remaining outstanding shares of Patheon Inc.

JLL also said it will let its $2.00-a-share tender offer for Patheon shares expire, but the New York firm is predicted to launch a new tender offer at more than double the price, an analyst told Prospect News.

Meanwhile, Wall Street sent stocks up across a range of industries on renewed economic hopes.

Investors pushed the Dow Jones Industrial Average up 155.91 points, or 1.67%, to close at 9,505.96.

The Standard & Poor's 500 index added 18.76 points, or 1.86%, to finish at 1,026.13, and the Nasdaq Composite index rose 31.68 points, or 1.59%, to 2,020.90.

Oracle awaits European scrutiny

Oracle said Thursday it received clearance of its $9.50-a-share cash acquisition of Sun Microsystems from U.S. regulators.

The European Commission's review of Oracle's takeover of Sun Microsystems is expected to expire on Sept. 3.

"I had said early on when this deal was announced, the biggest question mark was going to be the E.U. approval," Brent Williams, an analyst with Benchmark Co., told Prospect News on Friday.

The transaction also must receive antitrust approval in Canada, China, Israel, Switzerland, Russia, Australia, Turkey, Korea, Japan, Mexico and South Africa.

Santa Clara, Calif.-based Oracle had said it wanted the deal for Sun's Java programming language, which is in widespread use in computers and mobile phones. The European Union also may take a close look at competition in Redwood Shores, Calif.-based Sun's MySQL open-source database software.

Europe is more aggressive in promoting the use of open-source software, Williams said.

"We think that's one of the criteria they will use. We suspect they're going to have to think about that for awhile," he said. "We think the Europeans are going to ultimately approve the deal, but they may impose several covenants on the Java business."

Oracle shares rose 17 cents, or 0.77%, to $22.11.

Sun shares added 8 cents, or 0.86%, to close at $9.35.

Coke goes it alone

Pepsi's beverage bottling system is more fragmented than Coca-Cola's system, Fitch said Friday in the statement.

The system makes PepsiCo's $7.8 billion takeover of Pepsi Bottling Group Inc. and PepsiAmericas Inc. more "financially compelling for PepsiCo," Fitch said.

Purchase, N.Y.-based PepsiCo said it will pay $36.50 per share for Somers, N.Y.-based Pepsi Bottling and $28.50 per share for Minneapolis-based PepsiAmericas.

"PepsiCo's announced acquisition of its bottlers represents a significant shift in the company's structure, but we're not expecting Coca-Cola to follow suit," Christopher Collins, associate director at Fitch, said in the statement.

"We estimate that PepsiCo would gain significant additional synergies from its acquisition versus a Coca-Cola purchase of Coca-Cola Enterprises Inc. due to the separate Gatorade distribution system and lagging efficiency efforts in the Pepsi system."

Coca-Cola spokesman Dana Bolden told Prospect News that the company had no comment Friday on Fitch's announcement.

Torres, who has a stock target price of $52.00 a share on Coca-Cola, said in the research note that the company is positioning its system for future growth.

"Coca-Cola Co. is now well-aligned with its bottlers to take costs out of the system and reshape its brand, price and channel architecture in North America," Torres said. "We believe Coca-Cola Co. is taking a more active role in managing its bottler relationships, which should translate into a healthier and stronger Coke system longer-term."

Atlanta-based Coca-Cola's stock closed up 49 cents, or 0.99%, at $49.91 on Friday.

Shares of Coca-Cola Enterprises, also based in Atlanta, rose 34 cents, or 1.69%, to $20.41.

PepsiCo shares gained 65 cents, or 1.14%, to close at $57.49.

Shares of Pepsi Bottling added 19 cents, or 0.53%, to end at $36.01, while shares of PepsiAmericas closed up 14 cents, or 0.50%, at $28.23.

Patheon gives JLL cold shoulder

JLL Partners, which holds 57.00% of Patheon's outstanding shares, said Friday in a statement that it is "not interested in selling its position in Patheon at this time."

Lonza's offer values Research Triangle Park, N.C.-based Patheon at about $460 million.

Patheon provides contract dosage form development and manufacturing services to the pharmaceutical and biotechnology industries. Lonza makes research and development supplies for the pharmaceutical, health-care and life science industries.

"JLL will not enter into negotiations regarding the Lonza proposal, and Patheon shareholders should be aware that a transaction with Lonza cannot occur without JLL's support," JLL said.

The investment firm also said it will let its tender offer for the remaining outstanding shares of Patheon expire on Aug. 26.

Patheon's special committee of independent directors and Basel, Switzerland-based Lonza announced the buyout offer in a joint statement on Friday.

"Based on all of the information available to it, the special committee's view has been that Patheon continuing as an independent company is a more attractive alternative than the JLL offer," Paul Currie, chairman of Patheon's special committee, said in the statement.

Lonza has signed a confidentiality and standstill agreement with Patheon, and Patheon said it has agreed to not enter any deal negotiations with another party through Sept. 30.

JLL might consider an offer in the $5.00-a-share range, an analyst told Prospect News on Friday.

"Lonza's offer at $3.85 is in a depressed period of time. They're still turning around the operations, which is one of the reasons why JLL rejected the offer," the analyst said. "It was potentially a quick exit for them with a bit of profit, but it doesn't begin to offer additional upside with the turnaround. JLL has historically been a pretty patient investor."

JLL's investment in Patheon includes 38 million shares purchased at $4.77 and another 35 million shares purchased through the $2.00-a-share tender offer.

The firm also is likely to make another play for Patheon's remaining shares, the analyst said.

"Their average cost is in the $3.45 [a share] range," the analyst said. "Eventually JLL will probably make a bid for the remaining shares at least in the $4.00 to $4.50 [a share] range."

Patheon shares jumped 32.73% to close at $3.10 on Friday.

Mentioned in this article:

Coca-Cola Co. NYSE: KO

Coca-Cola Enterprises Inc. NYSE: CCE

Oracle Corp. Nasdaq: ORCL

Patheon Inc. Pink Sheets: PNHNF

PepsiAmericas Inc. NYSE: PAS

Pepsi Bottling Group Inc. NYSE: PBG

PepsiCo, Inc. NYSE: PEP

Sun Microsystems, Inc. Nasdaq: JAVA

© 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.