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Analysts, Investors Watch for ICN's Next Move as a Player in a Takeover

January 10, 1988|John Charles Tighe

Analysts aren't quite sure what to make of it, but investors are focusing increased attention on ICN Pharmaceuticals of Costa Mesa, which has emerged as a possible player in escalating drug industry takeover activity.

Giant Swiss drug maker F. Hoffman-La Roche & Co. announced last Monday that it planned a $4.2-billion takeover of New York-based Sterling Drug, which has spurned the unsolicited offer.

ICN has emerged as a player in the drama because its continuing purchases of shares in Hoffman-La Roche make it the Swiss company's largest single shareholder outside the Hoffman family.

Speculation about possible interest on ICN's part in acquiring control of Hoffman-La Roche increased last week when ICN disclosed that it had increased its ownership of Hoffman-La Roche's voting stock to 7.3% from 6.3% in recent months.

As Much as 25%

ICN also reported that it has received clearance under federal antitrust laws to purchase as much as 25% of Hoffman-La Roche.

ICN stock closed Friday at $7.125 per share, up $1 for the week in heavy trading on the New York Stock Exchange.

Although many analysts are skeptical about suggestions that ICN might try to buy a majority of Hoffman-La Roche stock, a few believe that Hoffman-La Roche might have made its offer to Sterling in part to keep ICN at bay.

"I believe Hoffman is doing this as a defensive measure," said Eugene Melnitchenko, a health care analyst at Eppler, Guerin & Turner, a Dallas-based brokerage.

Melnitchenko said he had reason to believe that ICN has already made a tentative offer to the management of Hoffman-La Roche, an international drug manufacturer firm best known as the maker of Valium.

Because Hoffman-La Roche has said that a majority of its 16,000 voting shares are "closely held" by family members and possibly their friends, the company would appear to be well protected against unwanted suitors. When ICN's initial purchases were disclosed, family member Paul Sacher said "contracts" within the founding family "ensure the present ownership structure."

But because Sacher is 81 and his wife Maya, widow of the founder's son, is 90, analysts said there is concern about whether the elder family members can keep the current ownership structure intact and whether their heirs could be enticed into selling.

Under Swiss law, a hostile tender offer is not prohibited. In most cases, government approval is not needed for a foreign firm to purchase a Swiss company. There is no single agency, such as the U.S. Securities and Exchange Commission, that oversees corporate acquisition activity.

However, if more than a third of a Swiss company's assets are in land or other property, a takeover must be endorsed by the government. That requirement is designed to keep foreigners from buying up Swiss property.

Although ICN was required to seek antitrust clearance from the Federal Trade Commission to increase its ownership of Hoffman-La Roche shares, the Swiss government does not require potential buyers to disclose their share purchases.

Several analysts said that it might cost more than $5 billion to acquire Hoffman-La Roche, and ICN's existing debt load raises questions about its ability to raise that kind of money.

Trying to Create a Stir

In fact, some analysts suggest that ICN Chairman Milan Panic is simply trying to create a stir by announcing the share purchases in the midst of the Sterling Drug takeover battle.

Panic is no stranger to publicity. The Food and Drug Administration criticized Panic after he announced in a Washington news conference last year that the company's primary drug, ribavirin, could be successfully used to delay the spread of AIDS in patients showing early signs of the deadly disease.

And company officials have confirmed that the SEC is investigating possible insider stock manipulation, inside trading and other matters involving ICN. The SEC, as a matter of policy, will not comment on investigations.

But some analysts said the investment in Hoffman-La Roche makes sense. "This is no stunt. He's not doing this just for the hell of it," said Craig Dickson, a drug industry analyst at Interstate Securities, a brokerage firm in Charlotte, N.C.

"He's making an investment. And Hoffman-La Roche is a good investment," Dickson said.

"The investment displays ICN's value," added Melnitchenko, speculating that if ICN doesn't increase its stake, it might sell its shares back to Hoffman-La Roche or possibly offer them to Sterling.

Primary Concerns

No matter what ICN has in mind for its Hoffman-La Roche shares, the unusual investment isn't necessarily the major factor behind recent investor interest in ICN stock.

Melnitchenko said the primary concern of ICN shareholders continues to be the company's efforts to obtain federal approval of ribavirin as a treatment for patients with acquired immune deficiency syndrome, which has no known cure and has killed thousands.

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