Scenarios: Will J&J lower its bid for vaccine maker Crucell?

AMSTERDAM Mon Jan 3, 2011 2:08pm EST

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AMSTERDAM (Reuters) - Dutch biotech firm Crucell CRCL.ASCRXL.O has urged investors to accept an agreed 1.75 billion euros bid from U.S. healthcare group Johnson & Johnson (JNJ.N).

But J&J has left open the possibility of changing the terms of the deal if Crucell's recent vaccine production problems at a South Korean plant turn out to be more serious than initially thought.

Adding to the uncertainty, key Crucell shareholder Van Herk, which holds a 10.02 percent stake, has called the offer price "meager" and has not said whether it will tender its shares.

Here are some possible scenarios looking ahead to the end of the offer period on February 16.

J&J RENEGOTIATES DEAL TERMS

Crucell halted shipments from its Korean vaccine facility and booked a 23 million euro inventory writedown following a microbiological contamination at the plant last year, but expects to return to full manufacturing capacity in February.

J&J has said the production issue alone does not constitute a "material adverse effect," but warned that further developments may be taken into account. Crucell still needs to update J&J about the problem prior to end of the offer period.

Shares in Crucell are now hovering about 4.5 percent below J&J's offer price of 24.75 euros, reflecting some concerns in the market that the offer might still be lowered.

"It is a possibility, given they have left this option open, but I would like to focus on the long-term story in which this is a strategic asset for J&J," RBS analyst Mutlu Gundogan said.

"Can Crucell fix the problem in the time it has indicated? If they can't, we can only reason how much value has been destroyed and that means J&J could lower their bid."

VAN HERK REFUSES TO TENDER SHARES

Crucell's second-biggest shareholder, Van Herk, has been the most vocal in describing the J&J bid as too low, arguing that Crucell's stand-alone value should be 27.50 euros per share.

Van Herk director Gertjan van der Baan has not yet said whether he will tender the group's shares and has declined further comment to Reuters.

J&J has said that if it acquires between 80 and 95 percent of Crucell's shares, it could then force Crucell to sell its entire operations to a J&J affiliate, leaving Crucell as a shell or holding company.

Known as an "empty box strategy," this would leave minority shareholders with nothing, analysts say.

However, some analysts also say that in the wake of Crucell's production setback, calls from shareholders for a higher offer have mostly been silenced because of fears the offer might now be withdrawn or lowered.

J&J is considered likely to obtain more than 80 percent of Crucell's shares, putting Van Herk in a difficult position and raising the possibility it will tender its shares.

J&J COMPLETES OFFER UNCHANGED

Now that Crucell has already taken the inventory charge, some analysts say the worst of its problems could be over.

"I don't think J&J will change its offer price, and they will win the battle against minority shareholders, essentially thanks to the manufacturing issues Crucell is facing," Exane BNP Paribas analyst Vincent Meunier said.

"It is simply a question of timing, that is why the share price is below the offer price. This is also a good reason to really tender their shares," Meunier said, adding that J&J is now clearly unlikely to raise its offer.

(Editing by Sara Webb and David Cowell)

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