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TORONTO - Score one for JLL Partners in its protracted hostile takeover bid for Canadian pharmaceutical products company Patheon Inc. (TSX:PTI).
Swiss drug company Lonza Group, once seen as a potential white knight in the battle between Patheon and the New York-based investment firm, announced Tuesday it has withdrawn from negotiations with Toronto-based Patheon.
Talks over potential "strategic transactions" between Lonza and Patheon had continued after JLL used its 57 per cent holding in Patheon to block Lonza's US$485-million takeover proposal for the company.
Patheon officials have refused to be specific about the ongoing talks with Lonza, other than to say any of the potential transactions would not have required the sale of JLL shares.
"Nobody's been able to say," said analyst Duncan Stewart of DSAM Consulting. "(But) It would have been a very complicated structure to have some kind of strategic deal (without JLL) so I think it was too hard to do that."
Asked if he considered Tuesday's developments as a JLL victory, Stewart replied: "Well, it is, kind of."
"JLL could have supported a Lonza takeover at the right price, which would have allowed JLL to make money on their investment. But that is not what JLL has indicated. They are not interested in being sellers ... and certainly not at the price Lonza was offering."
Price apparently has been at the heart of the battle from day one. Lonza had suggested a deal in the neighbourhood of US$3.55 a share, much higher than the US$2 offered by JLL back in December 2008, but still considered "opportunistic" by many who follow Patheon, Stewart said.
"Patheon had a number of (bad) acquisitions and had some operation issues," Stewart said, adding that many analysts now believe they are well on the way to solving their problems.
JLL originally bought into Patheon when shares were trading under $2 a few years ago and reached 30 per cent ownership under its tender offer of $2. However, it faced costs estimated above $4 a share in converting its large holding of preferreds into enough restricted voting shares to give it equity control.
JLL has three seats on the eight-seat Patheon board, but under an original agreement with Patheon - currently the source of litigation - it is unable call a special meeting or vote in its own slate of directors.
Asked who is right in the dispute, Stewart refused to play judge.
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