Winnipeg Free Press - PRINT EDITION

Battle on to take over drug manufacturer Patheon

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TORONTO -- Initial investor optimism over a potential friendly takeover bid for Canadian drugmaker Patheon Inc. (TSX:PTI) was tempered Friday after Patheon's biggest shareholder said it won't support the US$458.5-million offer.

Patheon shares soared Friday, but those gains were moderated when investment firm JLL Partners Inc., which has been attempting a hostile takeover of Patheon since last December, said it isn't interested in selling its majority stake in the company.

Patheon shares closed up 80 cents or 31 per cent at $3.38.

The new bid, from Swiss-based global contract manufacturer Lonza Group AG, is worth US$3.55 per share. Patheon said it trumps JLL Partners' offer of $2 per share.

Paul Currie, chairman of Patheon's special committee of independent directors, said the company is reviewing the bid "very carefully."

"This is an offer from a compelling and strategic partner with complementary businesses and is 75 per cent in excess of the competing offer," Currie said. "It's beneficial to customers, employees and shareholders."

But JLL issued a statement Friday indicating it would fight the Lonza bid.

"JLL will not enter into negotiations regarding the Lonza proposal and Patheon shareholders should be aware that a transaction with Lonza cannot occur without JLL's support," the New York-based company said.

JLL said it will not extend its own offer past the Aug. 26 deadline.

The Lonza proposal is conditional upon at least 67 per cent of Patheon's outstanding shares being tendered to the bid. Since JLL owns 57 per cent of Patheon, Lonza's bid cannot be approved without JLL's backing.

"The completion of the Lonza offer will depend, in our view, on JLL's overall receptivity to it and whether JLL is willing to surrender its own shares at US$3.55 per share," said Desjardins Securities analyst Maher Yaghi.

Yaghi said the Lonza offer is in line with Desjardins' C$3.75 target price valuation for Patheon.

Patheon's board of directors has put its support behind the Lonza bid.

The drugmaker went to court in May in an effort to remove board candidates nominated by JLL and stop the firm from voting its restricted voting shares acquired under the bid.

JLL has extended its offer for Patheon numerous times since its first bid, and has acquired 57 per cent of Patheon's stock.

The transaction is subject to Lonza satisfactorily completing its due diligence investigations and the approval of each company's board of directors.

Patheon is one of the world's largest global contract drug manufacturers, doing business with multinational firms.

-- The Canadian Press

Republished from the Winnipeg Free Press print edition August 22, 2009 B8

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