Eli Lilly bids $6.5 billion for ImClone

By Toni Clarke and Jessica Hall

BOSTON/PHILADELPHIA (Reuters) - Eli Lilly and Co has agreed to acquire ImClone Systems Inc for $6.5 billion, outbidding Bristol-Myers Squibb Co and potentially bringing to a close one of the most colorful corporate sagas in biotech history.

The acquisition would give Lilly ImClone's cancer drug Erbitux and five experimental products that, if successful, could help offset the impact of generic competition to Lilly's blockbuster schizophrenia drug Zyprexa.

The deal would also mark the end of a corporate soap opera spanning more than a decade that included the jailing of ImClone's founder Samuel Waksal and style guru Martha Stewart in a stock trading scandal.

And it would represent a satisfying victory for Carl Icahn, the billionaire investor and chairman of ImClone's board, who took control of the company in 2006 at a time when many investors had written it off and almost no analysts were recommending the stock.

The deal, announced on Monday, values ImClone at $70 per share, a premium of 51 percent to ImClone's closing price on July 30, the day before Bristol made an offer of $60 a share for the 83 percent of the company it does not already own.

Bristol said it will not raise its recently sweetened offer of $62 a share, and said that at the close of ImClone's agreement with Lilly, Bristol would receive $1 billion for its 17 percent stake in the company.

The agreement between New York-based ImClone and Indianapolis-based Lilly was greeted with muted enthusiasm by investors, who are concerned that Lilly might have trouble financing the deal given the current turmoil in the credit markets.

"For a company the size of Lilly, this is a manageable deal, so there shouldn't be major concern; but the market is worried about any funding issues at the moment," said one trader who specializes in takeover stocks.

Lilly's shares were down nearly 10 percent in afternoon trading; Bristol's shares fell 7 percent; and ImClone's shares rose 1.7 percent to $66.06 in a sharply lower U.S. stock market.

Lilly plans to take on $2 billion to $3 billion in debt to help finance the acquisition, prompting Moody's Investors Service to place Lilly's Aa3 long-term debt under review for a possible downgrade.

Nervousness among investors about the ability to fund and close deals is particularly high following the announcement last week by tobacco company Altria Group Inc that it might hold off on closing its $10.4 billion purchase of smokeless tobacco-maker UST Inc until early January, at the request of its lenders.

But Derica Rice, Lilly's chief financial officer, told analysts the company has $5 billion in backstop financing, having raised a committed $4 billion since the end of the second quarter.

The company said it would finance the remainder of the deal in cash. As of the end of June, Lilly had $2.9 billion in cash and cash equivalents and $2.3 billion in short-term investments.

VICTORY FOR ICAHN

"This is classic Carl," said Mark Stevens, author of an unauthorized biography of Icahn called "King Icahn" and chief executive officer of management consulting firm MSCO. "He is like a Chinese water torturer. He has great patience. And he is always 10 steps ahead of everyone else."