CSL and its investors will know Thursday if its ambitions to become the world’s second major blood plasma group will survive the US anti-trust authorities.
After CSL’s message to the market yesterday it’s highly unlikely, especially with the US anti trust authorities seeking to change the eight years of basically hands free policy in this area that existed under President George W Bush.
The US Federal Trade Commission told CSL that it had recommended legal action to block the proposed $US3.1 billion purchase of Talecris Biotherapeutics Holdings Corp.
CSL unveiled its ambitious takeover of Talecris in August last year, agreeing to pay $US3.1 billion ($A4 billion) for the company, which would have made CSL Number 2 in the world in blood plasma and biotechnology therapies.
The US FTC told CSL it will make its final decision on the merger proposal on May 28 when a vote will be taken by the Commission.
It would seem that despite this vote, the FTC’s view of the deal is negative.
Citigroup analysts said yesterday in a client note that the CSL statement yesterday "does not read well for CSL".
"While general industry consensus is that ownership of Talecris by CSL would strengthen quality control in the industry and product availability, it would seem that the issue of market share for the FTC is too high a hurdle to jump over.
"CSL has two legal avenues which it can pursue. The shorter of these two tracks will mean a final decision could be made by mid September.
"This does raise the issue of what happens to Talecris in the event any appeal by CSL fails. We are of the view that the USA plasma market will continue to rationalise with or without the Talecris acquisition.
"A possibility is that Talecris will be broken up into parts and sold off to the highest bidder.
"Companies such as Viro Pharmaceutical, Shire and JNJ have all made recent acquisitions in the plasma product space and may well be interested in some or all of Talecris. It should be noted however, that Talecris relies on CSL to supply ~ a third of its plasma supply."
If there’s no corporate activity, then CSL investors might get a second prize (or first for them) in a share buyback.
UBS reckons CSL has $4 a share cash without the Talecris takeover. That’s about $2 billion cash.
There’s also the question of a $US75 million break fee it must pay to Talecris’s private equity owners, Cerberus Partners and Ampersand, if it is unable to secure approval to complete the deal.
CSL said in yesterday’s statement that the company met with FTC staff in Washington on May 22 to discuss the proposed deal. (That was last Friday night, our time.)
"During that meeting the company was told staff recommended the Commissioners initiate legal action in the U.S. District court to block the deal."
But you have to wonder how aware was CSL about the possible approval problems.
On May 7 CSL issued this statement:
"CSL Limited has become aware of market and media speculation regarding the proposed acquisition of Talecris Biotherapeutics, Inc.
"This matter is currently being considered by the U.S. Federal Trade Commission (FTC), including the potential for remedies.
"This development is not unusual and provides no indication that the deal will, or will not, proceed, or the timing of an FTC decision.
"CSL will immediately notify the Australian Stock Exchange as and when it is aware of the decision by the FTC."
At least one leading broker had issued a client note pointing out that there might be approval problems on the FTC, judging by the previous voting records of the relevant Commissioners involved in this case.
As well, there have been clear statements from Administration officials in recent weeks pointing out that the eight years of hands off regulation was over.
Obviously a lot has changed since May 7, and obviously it has come as a surprise to CSL.
CSL shares closed down 54 cents, or 1.7% at $30.35
