An advantage on paper

19 November 2007 By Robert Cyran Follow @rob_cyran

Celgene could have found $3bn to buy smaller rival Pharmion from cash on hand. But it had a more valuable currency its richly valued stock. Biotech groups high multiples and their growing ambitions could derail big pharma s acquisition plans.

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Celgene has agreed to acquire Pharmion for $2.9bn, or $72 per share, in cash and stock. The biotech group will pay $25 in cash and $47 in stock. Both companies develop and sell drugs that treat cancers of the blood.

The stock component is collared. If Celgene shares are worth between $56.15 and $72.93 at the time of the merger, then Pharmion holders will receive for each share $47 divided by the Celgene stock price. If Celgene stock is above $72.93, the exchange ratio is 0.6445. If Celgene stock is below $56.15, the ratio is 0.837.

JPMorgan and Merrill Lynch advised Celgene. Bank of America advised Pharmion.

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