Patheon Inc.'s majority owner says it is not interested in selling the drug manufacturer to Switzerland's Lonza and has no plans to enter talks, but industry watchers say the door is probably still open.
Lonza launched a $3.55-per-share, $460-million bid for Patheon on Friday, driving the stock up nearly 30 per cent with the offer that gave the Canadian company an enterprise value of some $700-million.
Patheon's top shareholder is JLL Partners, a New York-based private equity firm and turnaround specialist with some $4-billion in capital under management. It rejected Lonza's offer outright, even though it would have meant a large premium to the stock price.
On Monday, JLL said it wasn't time to sell, sending Patheon's shares down more than 7 per cent.
"We have told the special committee and Lonza that we will not discuss or have any meeting regarding the sale of our shares, and we will not have any meetings that relate to selling the company," said Ramsey Frank, a partner at JLL Partners and a Patheon board member.
The offer "is dead on arrival. We are not selling," he told Reuters by telephone from Europe.
Patheon, with more than 4,000 employees and sales of $717-million, provides contract development and manufacturing services to the pharmaceutical industry. Its services range from preclinical development to commercial manufacturing.
But the company, among the top three global commercial drug manufacturers, has been hit by the global financial crisis as key pharmaceutical companies cut costs to shore up balance sheets.
JLL sees itself as the company's saviour, swooping in more than two years ago to help Patheon shift focus and make more lucrative prescription drugs from over-the-counter drugs.
"Part of our job is to do the best we can with the business, and in the right environment, and at the right time, sell it," said Mr. Frank. "And that's not today."
Others say the key factor for JLL is price, not timing.
"We are not surprised that JLL is reluctant to tender to what we believe is Lonza's first, not final bid, particularly when JLL effectively purchased 38 million Patheon shares at a far higher price when it converted its preferred shares in July," Douglas Loe, an analyst at Versant Partners, said in a note.
In July JLL converted preferred shares it held into restricted voting shares at an effective price of $4.77 per share, and brought its stake in Patheon to 57 per cent.
JLL started building its existing stake in Patheon last December, offering $2 per share, or some $230-million at that time, for the 71 per cent of the company it did not already own.
The company built its stake to about 38 per cent with the offer, despite complaints from the special committee of shareholders that it undervalued Patheon. The committee pointed at the price JLL paid to convert shares last month as further argument that the offer was too low.
For some, all that Lonza needs to do to bring JLL back to the table is bring its offer closer to the conversion price.
The "process awaits Lonza's due diligence that will conclude at quarter-end, and whether it intends to modify a bid that clearly has no chance of success without JLL's endorsement," said Mr. Loe, the Versant Partners analyst.
Lonza has signed a confidentiality and standstill agreement with Patheon. The Canadian company has agreed to refrain from negotiating with any other company until the end of next month.
However, Lonza would need JLL's support for any bid to advance, given that it owns the majority of the company's stock.