Lilly hopes to nail Icos bid with sweetened offer

This is from the BSI newsletter:

ICOS Corp. (ICOS, 18-Dec-2006) announced that its board of directors unanimously approved a revised agreement with Lilly (LLY) to sell the company for $34/share. This is the same board that unanimously agreed to sell the company to LLY for $32/share just last month, saying it would be in "the best interests" of the shareholders to vote for the proposal.

Under the terms of the buyout offer, competitive bidding for ICOS shares was not allowed, and the company's officers and directors stood to gain nicely in terms of bonuses, severance and stock options from the offer. Shareholders apparently recognized the fishy smell, and it appears LLY upped the offer slightly to make it more palatable.

The new shareholder vote for the revised bid has been scheduled for 25-Jan-2007. HealthCor Management, which owns 5% of the ICOS outstanding shares, believes ICOS is worth more than $40/share. Merrill-Lynch, who stands to make $10MM if the deal goes through, will include a new 'fair-value' statement in the revised proxy materials, but the ICOS board made no commitment to obtain an independent valuation of the company by someone without a financial interest in the merger transaction.

In shareholders' eyes, it seems the ICOS board has lost its credibility by appearing to line their own pockets while failing to get the shareholders the best deal possible the first time around. We now expect further shareholder dissent, and would hold on to the shares in anticipation of even a better deal to come."

This is from the BSI Newsletter:
"ICOS Corp. (ICOS, 5-Jan-2007) this week sent out its revised proxy statements to shareholders reflecting Lilly's (LLY) new bid of $34/share, up from $32/share, to buy all of ICOS' outstanding shares. We still believe this offer is too low.

The proxy information details ICOS management's financial projections, estimating ICOS' EPS of $0.94 for 2007, $2.05 for 2008 and $3.49 for 2010. Based on these estimates, we're looking at an annual earnings growth rate of 75% for the next 4 years. The $34/share buyout translates into a 2008 P/E less than 17.

Would anyone think a P/E of 30 is too high with 75% growth? A 30 P/E translates into a stock price of over $60/share in 2008, using management's $2.05 EPS. That would be a 76% gain in 2 years over the proposed buyout price. If these estimates are even close, why would anyone want to sell their stock to LLY for $34? We would be aggressive buyers with numbers like those."