FRANKFURT/OSLO Bayer (BAYGn.DE) has won backing from the board of Algeta ALGETA.OL, its partner for a new prostate cancer treatment, for an increased $2.9 billion offer to buy the Norwegian company.
The cash deal would boost Bayer's drugs division by giving it outright control over Xofigo, a drug the two have developed jointly since 2009 and started selling in the United States this year.
The German drugs and chemicals group regards Xofigo as one of its five most important new drugs, a group that together has joint annual sales potential of 5.5 billion euros ($7.6 billion).
Bayer's sweetened bid at 362 Norwegian crowns per share represents a 37 percent premium to Algeta's closing price on November 25, the day before its initial offer became public.
Last year, healthcare deals carried an average 36 percent premium to the target's recent share price, according to Thomson Reuters data.
Bayer's increased bid is at a 48 percent premium to Algeta's three-month volume weighted average stock price on November 25.
Bayer initially offered $2.4 billion, or 336 crowns per share.
Algeta said on Thursday that its board unanimously recommended shareholders accept Bayer's sweetened offer.
A fund that is the company's largest shareholder and senior Algeta managers, together representing 14 percent of Algeta's share capital, planned to accept, Algeta said.
Bayer's shares were up 1 percent, while Algeta's rose 1.5 percent by 5:21 a.m. ET in line with the Stoxx Europe 600 health care index .SXDP.
For Bayer, Algeta fits with Chief Executive Marijn Dekkers' strategy of driving growth by building up the pharmaceuticals division, which now overshadows chemicals in importance.
Bayer sees high market potential for Xofigo, a radioactive agent that migrates to parts of the body of prostate cancer patients with abnormal bone growth, thereby minimizing damage to surrounding tissue.
Although Xofigo sales were only $17 million in the third quarter, they are expected to rise to $1 billion or more by 2018.
But some analysts, who though Bayer's initial offer might be too high, repeated those concerns on Thursday.
"The takeover price ... appears to be a bit stiff," DZ Bank analyst Peter Spengler said in a note to clients.
However, Spengler also estimated that the takeover will allow Bayer to save milestone payments and royalties of over 500 million euros.
"It strengthens Bayer's oncology business," said Helvea analyst Odile Rundquist. "We expect a positive impact on Bayer's pharma margin."
The offer, which is expected to go to Algeta shareholders in January once it has been cleared by the Oslo stock exchange, is subject to a minimum acceptance of 90 percent of Algeta's share capital, as well as approval by antitrust authorities.
The transaction is expected to close during the first quarter.
(Reporting by Jonathan Gould, Christoph Steitz and Gwladys Fouche; Editing by Erica Billingham)