King bids $1.4 bln for Alpharma, could go hostile

By Toni Clarke and Lewis Krauskopf

BOSTON/NEW YORK (Reuters) - King Pharmaceuticals Inc (KG.N) said it has offered to acquire Alpharma Inc ALO.N for $1.4 billion to expand its pain drug business and warned it would turn hostile if the company refused to accept the bid.

Alpharma, which makes the pain drug Kadian and pain patch Flector plus products to treat animals, said its board determined the offer "to be not in the best interests of Alpharma shareholders" though it would "consider seriously any bona fide proposal that reflected the fair value of the company."

In an open letter to Alpharma Chief Executive Dean Mitchell, King CEO Brian Markison said he hoped Alpharma's board would "reconsider" the proposal.

"We continue to prefer to work together with you and your Board to complete a negotiated transaction," Markison said. "If we are unable to negotiate a transaction, we are prepared to take this offer directly to your stockholders."

King's offer of $33 a share represents a 37 percent premium over the $24.04 closing price of Alpharma's shares on Thursday. The shares rose 44 percent to $34.61 in afternoon trading on the New York Stock Exchange. They had fallen 16 percent before the offer from a 52-week high in April.

"What this offer does is put the company in play," said RBC Capital Markets analyst Ken Trbovich. "The offer was clearly too low to be attractive, and now that they're in play, the anticipation is going to be that others will step forward with a more attractive offer."

Trbovich said other potential bidders could include Endo Pharmaceutical Holdings Inc (ENDP.O), Cephalon Inc (CEPH.O), Johnson & Johnson (JNJ.N) and Abbott Laboratories Inc (ABT.N).

Bristol, Tennessee-based King had revenue of $2.1 billion last year and Alpharma, based in Bridgewater, New Jersey, had 2007 revenue of $722 million.

"This is a stab to make themselves (King) the dominant player in the pain management business in a hurry," said Cowen & Co analyst Ian Sanderson. "I think it's a very good strategic move for them."

In its public letter of response to King, Alpharma's Mitchell said King had refused to sign a confidentiality agreement that would enable Alpharma to have "an orderly evaluation process and ensure that we are able to protect the long-term interests of our shareholders."

Mitchell said confidentiality would enable Alpharma to provide King with non-public information that would demonstrate that $33 a share "significantly" undervalues the company.

EYES ON ANIMAL BUSINESS

King's shares have slumped some 50 percent since May 2007 as sales of its blood pressure drug Altace were hit by competition from generic rivals. On Friday King's shares rose 8.1 percent to $12.16.

Markison said in an interview that King aims to retain Alpharma's animal health business, which would help diversify the company and be a "steady deliverer of long-term cash flow."

He said he expects between $50 million and $70 million in cost savings and that the combination would be accretive to net earnings in the second year. He said he is "confident" a deal will be closed by the end of this year.