The Japanese Love Scotland. Could That Seal A Higher Deal For ProStrakan?

The little party assembling around Scotland-based spec pharma ProStrakan just got a bit more lively. The company's got one leg in the bed with Kyowa Hakko Kirin, as we reported here, even though the Japanese firm's cash offer for the group, at 130p per share, was generally seen as rather stingy.

But the deal isn't sealed: conditions of the offer, which has been agreed only by 47% or so of ProStrakan's (jaded) shareholders, are voided if a counterbid worth 140p or more materializes. The consensus yesterday was that a counterbid was unlikely; after all, ProStrakan has been up for sale since November 2010, having seen two major regulatory snafus and a manufacturing problem in the U.S, and booted out its CEO in September. This was a company unashamedly on the block. If no one else had bid by now, why would they start?

Well in fact someone had bid before now: private Norgine. The quiet, pan-European specialty pharma firm, registered in Holland, on the prowl for some more products. It had offered ProStrakan £1 per share, but that offer (after consideration) was rejected. In fact, it was this that prompted ProStrakan to put itself publicly up for sale, to try to garner a better deal. Meanwhile Norgine decided to somewhat sneakily buy Sanofi's stake in ProStrakan, notching up a 13% holding at 95p. That purchase has already made the company a tidy windfall, if not brought it any products.

It now seems Norgine wants some more of that, thank you: the company this week increased its holding to 14.4%, buying shares at 129p and 129.75p. Why? If it's about an opportunitistic investment, it's unlikely to make money coming in at this level.

More likely, perhaps, is that Norgine is mopping up whatever shares it can at today's price, ahead of making a counter-bid for the group -- which would have to be priced at 140p at least, to invalidate the Kyowa deal.

If that is the plan, it won't be a friendly deal: unlike Kyowa, for whom ProStrakan will provide a first foothold in Europe, Norgine already has a European infrastructure. The company apparently doesn't want activities in the U.S, either. So it would,we speculate, be a slash-and-burn job.

Kyowa, in contrast, has said it will maintain ProStrakan's management and staff. The deal is, arguably, far more valuable to the Japanese group, which is seeking a commercial outlet for its pipeline products in the West, and which already markets ProStrakan's Abstral and Sancuso in Japan and some Asian markets.

So Norgine, if it's going to gatecrash this party, will need to entertain the notion of a higher bid from Kyowa (which according to ProStrakan acting-CEO Peter Allen was the one to initially suggest the 130p per share price, so it probably didn't have to negotiate too hard first time around). All the more reason for Norgine to mop up shares now -- a move that "has all the hallmarks of a company about to go hostile," according to Singer Capital Markets analyst Shawn Manning.

But a Norgine counterbid, were it to be made (and few analysts, even now, are saying it's likely) would come up against not only Kyowa's funding muscle (the company had sales of $5 billion in 2010, versus Norgine's $400 million) but also another, softer factor, according to Manning: the Japanese's love for Scotland and all things Scottish. Whether it's the whisky, the bagpipes or the Highlands, who knows. It could even be the Japanese-corporate-style dedication to the job that ProStrakan employees allegedly show (since there are few other biopharma employers in the Galashiels area).

Tartan and shortcake, then, may yet seal for ProStrakan's patient shareholders a rather more valuable exit than a good chunk of them appeared resigned to on Feb. 21.

image by flikrer BoSoxBrent used under a creative commons license