August 21, 2009 / 5:47 AM / 10 years ago

UPDATE 5-Lonza bids $460 mln for Patheon, JLL holds firm

* Lonza bids $3.55 per share

* Well above JLL’s offer of $2.00 per share

* JLL says won’t tender to Lonza bid

* Lonza shares fall 3.5 percent

* Patheon shares rise 30 pct to C$3.33 (Adds JLL comments; in U.S. dollars unless noted)

By Katie Reid and Martin de Sa’Pinto

ZURICH, Aug 21 (Reuters) - Switzerland’s Lonza LONN.VX launched a $460 million bid for Patheon PTI.TO on Friday, but the Canadian drugmaker’s majority stakeholder rejected the offer, which trumped its own bid for the Patheon shares it does not already own.

Lonza’s bid of $3.55 a share for Patheon offers a potential windfall to the majority shareholder, JLL Partners. The private equity firm, which now owns 57 percent of Patheon, launched an offer at $2 a share last December and has been building its stake since.

Lonza’s non-binding offer, priced at a premium of 50 percent to Patheon’s Thursday’s close of C$2.58 ($2.35), gives the Canadian company an enterprise value of $700 million. Patheon shares jumped 29 percent to C$3.33 on the Toronto Stock Exchange on Friday afternoon.

U.S.-based JLL rejected Lonza’s overture on Friday afternoon, saying it would not enter into negotiations regarding the Swiss drug industry supplier’s proposal.

“Patheon shareholders should be aware that a transaction with Lonza cannot occur without JLL’s support,” the private equity firm said in a release.

Analysts said the deal made strategic sense for Lonza, as it would allow it to offer drugmakers a wider range of services. Still, they expressed some concerns about Patheon’s profitability and saw a possible bidding war.

“From a strategic standpoint this acquisition makes sense. However, from a financial standpoint the deal will be dilutive in the beginning and can only become accretive if Lonza can achieve an operational turnaround,” said Vontobel analyst Carla Baenziger.

Lonza, which has warned that its operating profit will not rise this year, said the deal would add to earnings per share from the second year and would improve its return on assets.

“The entire business is appealing to us because it’s the area of business we want to move in,” a Lonza spokesman said.

“We are not willing to enter into a bidding war,” he added.

Basel-based Lonza, which had net cash of 231 million francs ($217 million) at the end of June, said it planned to finance the deal from existing cash resources and bond instruments.

Lonza shares fell 3.5 percent to 105.90 Swiss francs.

Douglas Loe, an analyst at Versant Partners in Toronto, sees the stakes pushing higher before the saga reaches a conclusion, and he has a one-year target on Patheon stock of C$4.50.

“I think it’s entirely possible that both JLL and Lonza will agree with us that there is still value in Patheon’s growth prospects at or near our one-year target, and we think that either of those players or others could agree,” he told Reuters. “There is potential for a new bid to materialize.”

JLL said it would not extend its bid beyond Aug. 26.

MAJORITY STAKE

Patheon was in the top three of the global commercial drug manufacturing market and in the top five of the worldwide pharmaceutical development services market, Lonza said.

Lonza said Patheon’s special committee of independent directors supports its bid. It was not immediately clear what proportion of Lonza shares the committee, which rejected JLL’s bid in April, represents.

Lonza said its offer was dependent on it gaining more than 67 percent of Patheon and it was not interested in a minority stake.

Lonza has moved away from specialty chemicals to focus on higher-margin pharmaceutical ingredients, helping shield it from problems such as low-cost competition from Asia, which has affected Swiss peers such as Clariant CLN.VX.

It is now looking to move into the production of end products and was also in negotiations with another two or three companies, said Stefan Borgas, Lonza’s chief executive.

Patheon, which has more than 4,000 employees and sales of $717 million, provides contract development and manufacturing services to the pharmaceutical industry.

“It is a very positive development. It does show value well above the JLL offer and obviously well above where the stock has been trading. It is a proposal that needs to be explored further,” Patheon Chief Executive Paul Currie told Reuters.

($1=$1.08 Canadian)

$1=1.065 Swiss franc Additional reporting by Scott Anderson and Pav Jordan in Toronto; Editing by Will Waterman and Rob Wilson

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