Bristol to acquire ZymoGenetics for $885 million

LOS ANGELES (Reuters) - Bristol-Myers Squibb Co plans to acquire biotech drug developer ZymoGenetics Inc in a deal valued at $885 million -- a premium of about 84 percent to Tuesday's closing share price.

Bristol said it will pay $9.75 per share in cash, for a total cost of about $735 million after taking into account cash held by the smaller company.

Shares of ZymoGenetics, which were halted after hours, closed at $5.30 on the Nasdaq before the deal was announced on Tuesday.

The boards of both companies have unanimously approved the transaction and shareholders owning about 37 percent of ZymoGenetics have agreed to support it, the companies said.

"The acquisition of ZymoGenetics brings us full ownership of a promising investigational biologic that strengthens our very diversified hepatitis C portfolio," Lamberto Andreotti, Bristol-Myers' chief executive officer, said in a statement.

The experimental drug has the potential to effectively treat patients who do not respond well to traditional interferon treatment, said Piper Jaffray analyst Edward Tenthoff.

"We continue to expect more consolidation in the HCV (hepatitis C virus) space as big players build out their portfolios in a rapidly evolving treatment landscape," he said in a research note.

Bristol said it expects the transaction to reduce its earnings per share by 3 cents this year and by 7 cents in 2011.

Like other big pharmaceutical companies facing patent expirations on key products, Bristol-Myers has been active in acquiring new drugs to build up its late-stage development portfolio.

The company last year acquired biotech drug developer Medarex for $2.4 billion.

In addition to pegylated-interferon lambda for hepatitis C, for which ZymoGenetics and Bristol already have a collaboration deal, the latest acquisition adds Recothrom, a synthetic blood-clotting enzyme, to Bristol's drug portfolio.

ZymoGenetics' other development programs include interleukin-21 protein, which is being tested as a treatment for advanced melanoma, and six earlier-stage biologic drug candidates.

The company also has deals in place to collect potential milestone and royalty payments from partnered programs.

Novo Nordisk said it plans to sell its nearly 26 percent share stake in ZymoGenetics to Bristol-Myers. The Danish company said income from the sale is exempt from taxes and will have a positive one-time effect on its tax rate of about 1.5 percentage points.

The acquisition deal, which contains a provision under which ZymoGenetics has agreed not to solicit competing offers, is expected to close about 30 days after the start of a tender offer, which is expected to begin on Thursday.

Bristol-Myers said it will finance the acquisition from its existing cash resources.

Morgan Stanley is serving as financial advisor to Bristol, which has legal representation from Kirkland & Ellis LLP.

ZymoGenetics' financial advisor is Goldman Sachs Group Inc and its legal representatives for the acquisition are Latham & Watkins LLP and Fenwick & West LLP.

(Reporting by Deena Beasley; editing by Matthew Lewis, Andre Grenon and Carol Bishopric)

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