BREAKINGVIEWS-Pfizer’s obesity takeover requires a booster shot

By Aimee Donnellan

DUBLIN, Nov 3 (Reuters Breakingviews) - Bidding wars are won by those with the deepest pockets and steeliest stomachs. Pfizer boss Albert Bourla should bear that in mind as he seeks to salvage his takeover of U.S. biotech Metsera MTSR.O from an aggressive rival bid by Novo Nordisk NOVOb.CO. The $140 billion Pfizer PFE.N is taking both companies to court in the hope of blocking the Danish group's $8.5 billion bid. But given Novo's cash comes with few strings attached, a higher price is the only strategy that is likely to work.

Pfizer’s $7.3 billion offer to buy Metsera, a developer of obesity drugs, was pretty standard for a pharma giant. Bourla offered to pay $47.50 for each of the biotech’s shares and an additional $22.50 per share if Metsera's treatments pass a number of regulatory milestones. Novo’s attempt to crash the deal last week was anything but straightforward, though. The $220 billion drugmaker offered $56.50 in cash per share and an extra $21.25 worth of contingent value rights (CVRs) which will pay out if Metsera’s drugs make it to market. In a surprise twist, Novo promised to hand over the whole $6.5 billion cash component upfront, without waiting for approval from regulators or shareholders. If the deal fails to clear those hurdles, Novo will be saddled with a 50% stake in Metsera and no voting rights.

Pfizer argues Novo’s deal has little hope of being approved by competition authorities. The U.S. firm reckons its rival’s grip on the market for obesity drugs will prohibit it from swallowing Metsera. Novo says Pfizer’s claims are “meritless” and plans to defend itself against the litigation.

Investors are already voting with their wallets, though. The day after Pfizer made its $47.50 offer, the biotech’s shares jumped to $53. That implies investors value the CVRs at around $5.50, or roughly a quarter of their face value. After Novo crashed the party, the shares jumped above $63. That's higher than the price implied by Novo's cash offer plus the value of the CVRs. In other words, shareholders are expecting that one of the bidders - or a third party - will put down a higher bid. The shares dipped slightly in early trading on Monday.

Metsera has given Pfizer until Tuesday to make a counter offer. In the meantime, American regulators have given the U.S. drug giant the green light to scoop up its target - a speedy decision considering that such rubber stamps are often delayed and the U.S. government is currently shut down. Pfizer is right that it faces fewer regulatory hurdles. To win over Metsera shareholders, however, it will need to pay up.

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CONTEXT NEWS

Pfizer on October 31 filed a lawsuit against Metsera and Novo Nordisk, saying Metsera breached its merger agreement obligations in declaring the Danish drugmaker's $8.5 billion bid for the U.S. obesity drug developer to be a superior offer.

Pfizer asked the Delaware court to issue a temporary restraining order to block Metsera from terminating its agreement with the U.S. pharmaceutical giant. Metsera has given Pfizer until November 4 to raise its offer. Pfizer wants Metsera's scheduled shareholder vote to take place on November 13.

The legal action comes as Pfizer received early antitrust clearance for its proposed $7.3 billion acquisition of Metsera from the U.S. Federal Trade Commission. The antitrust agency granted early termination of the waiting period under the Hart-Scott-Rodino Act, more than a week ahead of the November 7 deadline.

"Pfizer's claims against Novo Nordisk are meritless, and we will vigorously defend ourselves in any litigation," a Novo spokesperson said.

Metsera said in a statement that it disagreed with Pfizer’s allegations and would address them in court.

Metsera shares were down 2.8% at $61.24 in early morning trading on Nov. 3.