Astellas sues OSI Pharma to block poison pill plan

NEW YORK (Reuters) - Japan's Astellas Pharma Inc (4503.T) sued OSI Pharmaceuticals Inc OSIP.O to prevent the U.S. biotechnology company from using a poison pill or other defense to block its $3.5 billion hostile takeover attempt.

The lawsuit, which accuses OSI's directors of breaching their fiduciary duties, intensifies the pressure on OSI just as Astellas commenced its $52-per-share tender offer to the company's shareholders on Tuesday.

Japan's No. 2 drugmaker aims to gain access to OSI's blockbuster Tarceva cancer treatment as it faces greater generic competition to its own drugs.

The OSI bid is also the second hostile takeover attempt by Astellas Chief Executive Masafumi Nogimori in little more than a year, when he failed in a bid for U.S.-based CV Therapeutics.

According to the suit filed in Delaware Chancery Court, Astellas was prepared to negotiate a deal in the range of $55 to $57 per share as recently as June, but OSI rejected the offer as too low. OSI did offer to make a case for a higher valuation based on nonpublic information about the company.

On Tuesday, OSI urged shareholders not to act on the tender as its board reviews the offer.

Melville, New York-based OSI currently has a poison pill, or shareholder rights plan, that expires in August. Adopted in 1999, the plan would be triggered if any party bought 17.5 percent of its stock, according to FactSet MergerMetrics.

The plan will "effectively make it impossible" for Astellas to complete the tender offer, according to its lawsuit.

"If the poison pill remains in place it will effectively preclude the tender offer and result in a further breach of the director defendants' fiduciary duties," the lawsuit said.

Astellas said its offer would be open until midnight New York time on March 31.

OSI shares rose 1.3 percent to $57, as investors were betting on a management fight that will lead to a higher offer, or a rival bid from the likes of Switzerland's Roche Holding AG (ROG.VX), its partner in Tarceva. Astellas shares fell 2.1 percent on concerns of a bidding war.

A senior healthcare banker in London said he doubted Roche would make a counteroffer as it was "very reluctant to get involved in hostile deals" and would keep its rights to Tarceva even if OSI was bought. Roche has declined to comment.

NOT JUST ROCHE

OSI may be particularly attractive to other companies because it is one of two acquirable commercial-stage oncology drug makers, along with Allos Therapeutics Inc (ALTH.O), said Leerink Swann analyst Howard Liang.

Tarceva would fit well with the oncology franchises of Pfizer Inc (PFE.N) and Celgene Corp (CELG.O), said Liang, who noted that he was unaware of interest from those companies.

The analyst raised his valuation on OSI shares to $60, based on similar oncology acquisitions.

But Canaccord Adams analyst George Farmer cut his rating on OSI shares to "hold" from "buy," calling the $52-per-share offer "about right" based on Tarceva's potential.

"We do not believe any counteroffer, whether from Roche or another party, will come in substantially above current trading levels or will come at all," Farmer said in a research note.

A successful bid for OSI would be the fourth-largest overseas acquisition by a Japanese drugmaker after deals in recent years by leader Takeda Pharmaceutical (4502.T), third-ranked Daiichi Sankyo (4568.T) and No. 4 Eisai (4523.T).

Citigroup (C.N) is advising Astellas and Morrison, and Foerster LLP is acting as legal counsel.

A YEAR-LONG COURTSHIP

Astellas's lawsuit also describes its efforts since January 2009 to negotiate a deal with OSI. In February 2009, Nogimori sent OSI CEO Colin Goddard a letter indicating Astellas's interest in buying OSI at a price between $55 and $57 per share -- a 54 percent to 60 percent premium at the time.

Later that month, according to the suit, Goddard sent a letter to Nogimori rejecting the offer, saying the deal "significantly undervalues" OSI.

In June, Astellas said it would still negotiate a deal in the $55-$57 per share range despite severe underperformance by OSI shares in the interim. At the time, OSI shares were trading just above $28, down from above $40 in February. OSI rejected the deal two weeks later, the suit said.

At a meeting between the CEOs in New York last month, Nogimori said Astellas would be willing to acquire OSI for $52 per share, according to the suit.

Goddard responded by letter to Nogimori 10 days later saying the company was not interested. The OSI chief made a "hollow" offer to provide nonpublic information about OSI under a nondisclosure agreement, the suit claimed.

"The proposed nondisclosure agreement contained a two-year standstill agreement that would have prevented Astellas Pharma from, among other things, making a tender offer, or participating in any solicitation of proxies," the suit said.

(Reporting by Lewis Krauskopf; additional reporting by Jessica Hall, and Quentin Webb in London; Editing by Michele Gershberg, Maureen Bavdek and Steve Orlofsky)