UPDATE 3-BTG to buy Protherics in $390 mln UK biotech deal

(Adds further BTG share price fall, analyst downgrading Protherics)

By Ben Deighton

LONDON, Sept 18 (Reuters) - BTG Plc (BGC.L) has agreed to buy Protherics Plc PRCS.L for around 218 million pounds ($388 million) in an all-share deal, the companies said on Thursday, marking the further consolidation of Britain's biotech sector.

Biotechnology has seen a spate of takeover activity recently, spurred by large drugmakers seeking to acquire new products to fill their depleted drug development pipelines and smaller companies joining forces to stretch cash reserves.

The deal would create Britain's biggest biotech company -- following the sale of many others to large pharmaceutical groups -- and one that is expected to enter the FTSE 250 index.

Louise Makin, BTG's chief executive, told a conference call, "In addition to these clear financial strategic benefits we have a potential FTSE 250 company that can be expected to provide increased share liquidity and a broader investor base."

Protherics shareholders will receive 0.291 new BTG shares for every Protherics share. That values Protherics at 60 pence a share -- a premium of 45.5 percent to the closing price on Sept. 17 -- based on a BTG share price of 206p.

BTG SHARES SLIDE

In fact, it may be a lot less, since BTG shares fell 19 percent to 162.75 pence by 1330 GMT on worries about the merits of the deal, leaving Protherics stock up just 9 percent at 45p.

"We believe the merger will go ahead," said analysts at Seymour Pierce.

"However, we are concerned that in the event of (the) BTG share price continuing to fall, the value of the new shares issued to Protherics shareholders will be further eroded."

The brokerage downgraded Protherics stock to a "sell".

Annual merger cost synergy benefits and rationalisation of the enlarged group's cost base are expected to be around 20 million pounds by 2010/11, the two companies said.

The acquisition is forecast to enhance earnings on an EBITDA basis and be cash neutral from 2009/10, and significantly enhance earnings thereafter.

ASTRAZENECA ALLIANCE

Protherics, which is expected to discontinue trading as a stand-alone entity in mid-December under the deal, first announced last month that it had received several bid approaches, and there had been some speculation it might be bought by AstraZeneca Plc (AZN.L).

"I think people would have preferred a cash offer from Big Pharma rather than paper in a company whose shares have gone up 115 percent in the last year when everything else has gone down," said KBC analyst Paul Cuddon.

AstraZeneca has a deal dating back to 2005 with Protherics covering its experimental drug CytoFab for sepsis, a deadly syndrome linked to serious bloodstream infections. The Anglo-Swedish group also has a 3.2 percent stake in the company.

Protherics also has an alliance with privately owned Swiss drugmaker Nycomed, which sells its CroFab treatment for rattlesnake bites and DigiFab for drug overdoses in the United States.

The two companies said that they have sounded out a significant proportion of shareholders, with BTG saying it has received positive responses from 45 percent of shareholders, and Protherics saying it had positive responses from 35 percent.

Rothschild is acting as financial adviser to BTG. Jefferies is acting as financial adviser to Protherics. (Additional reporting by Ben Hirschler; Editing by Simon Jessop and Quentin Bryar)