(Updates share prices; recasts)
By Toni Clarke and Jessica Hall
BOSTON/PHILADELPHIA Oct 6 Eli Lilly and
Co(LLY.N) has agreed to acquire ImClone Systems Inc IMCL.O
for $6.5 billion, outbidding Bristol-Myers Squibb Co (BMY.N)
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
"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
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
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 (MO.N) that it
might hold off on closing its $10.4 billion purchase of
smokeless tobacco-maker UST Inc (UST.N) 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
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
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."
In outmaneuvering Bristol, and eliciting a relatively high
price from Lilly, which is desperate for new drugs to fill its
pipeline, Icahn has done what he loves to do most, Stevens
"His goal, even more than making money, is to humiliate
CEOs of big lumbering companies, to pour vinegar in their
martinis and break their golf clubs."
For Lilly, the deal comes as it faces generic competition
to some of its biggest drugs.
"An all-cash offer is going to significantly drain the
company's cash position," said David Moskowitz, an analyst at
Caris & Co. "I think it is a deal being done out of weakness."
Lilly said it would incur a one-time charge to its
earnings, but it is premature to say what that charge would be.
The company expects the transaction to be accretive to earnings
on a cash basis in 2012 and on a net basis in 2013.
Cancer is one of the three main areas of research focus at
Lilly, along with diabetes and neuroscience. But its main
cancer drug, Gemzar, loses patent protection in 2012.
Erbitux, which is approved to treat colon cancer and head
and neck cancer, is ImClone's only marketed product, and
generated $1.3 billion in sales last year.
Part of the future value of ImClone may hinge on an
experimental follow-on product to Erbitux, known as 11F8.
Bristol-Myers has said, and reiterated on Monday, that it has
the rights to that product; but ImClone disputes that.
Lilly Chief Executive John Lechleiter said the amount being
paid by Lilly reflects the uncertainty over U.S. rights to
11F8. The company expects to close the deal in either the
fourth quarter of 2008 or the first quarter of 2009, Lilly
ImClone markets Erbitux in the United States with Bristol
and elsewhere in the world with Merck KGaA (MRCG.DE) of
Germany, and those relationships won't change, Lilly said.
As ImClone prepares to be sold, Icahn paid tribute to Sam
Waksal, whose social climbing, aggressive promotion of Erbitux
in the early years, and friendship with celebrities such as
Martha Stewart made his fall from grace all the more dramatic.
"While it is easy to hurl stones, all stockholders owe a
debt of gratitude to Sam Waksal, without whose dedication and
perseverance neither Erbitux nor our great pipeline would
(Additional reporting by Lewis Krauskopf; Editing by Brad
Dorfman and Gerald E. McCormick)