Axis-Shield takeover move 'shows appeal' of Scottish technology

AMONG all the talk of innovation and company creation at Edinburgh BioQuarter's inaugural awards lunch on Thursday, one topic kept coming up in conversation: the 230 million takeover approach for Dundee-based medical testing kit maker Axis-Shield by New York-listed Alere.

As the great and the good of Scotland's life sciences sector juggled their glasses of wine and plates of food from the buffet, the mingling throng shared opinions on the potential takeover battle.

"Big fish want to eat little fish and that's just the nature of business," said Mike Capaldi, commercialisation director of Edinburgh BioQuarter, one of Scottish Enterprise's (SE) flagship projects to create firms and jobs in the sector.

"I'd be worried if big international companies didn't want to eat Scottish fish - it shows we have good technology that they want."

One man who has ridden the rollercoaster of international takeovers as both buyer and seller is Walter Nimmo who, as chief executive of drug testing firm Inveresk, guided it through a Nasdaq listing in 2002 and a 830m sale to Charles River Laboratories in 2004.

"At the end of the day, all people in Scotland will care about is the jobs and whether they will stay in the country," Nimmo said.

"These big US companies don't take over firms with a view to making cutbacks, but sometimes the market changes and that's what happens. If these firms start feeling the pressure back home, then they tend to forget about their overseas subsidiaries."

Alere, which recently changed its name from Inverness Medical Innovations, revealed on Wednesday that it had made a 460p-a-share approach for Axis-Shield, which was created in 1999 through the merger of Dundee-based Shield Diagnostics and Norway's Axis Group.

Although the preliminary offer was made on 7 June, Alere has only just made the approach public. Axis-Shield's board, led by chief executive Ian Gilham, unanimously rejected the offer, claiming it undervalued the company and refused to enter into talks with Alere.

A source close to the Massachusetts-based firm said he was surprised the board had rejected the "handsome" offer, which came at a 37 per cent premium to Tuesday's closing share price and 45 per cent higher than its six-month average price.

But the stock soared nearly 50 per cent on Wednesday to a ten-year high of 500p, with Collins Stewart analyst Julie Simmonds suggesting a takeover bid of 550p-600p would be "more appropriate".

Whether or not a formal takeover bid is launched - and City analysts were quick to link Axis-Shield with other potential suitors, including Abbott, Roche and Siemens - does Scotland's life sciences sector need independent companies or subsidiaries of international groups?

"The answer is a mixture of both," mused Rhona Allison, senior director of life sciences at SE.

"The key priority for us in takeovers is to ask where the jobs will be. If a foreign company buys a Scottish firm and then moves its operations abroad, then that's bad news. But if the company stays in Scotland, then that can be helpful because it can attract other businesses."

Graeme Boyle, director of Nexxus, the life sciences networking body, argued that overseas mergers and acquisitions (M&As) are an inevitable part of life science companies "internationalising" their businesses. He pointed to a 2008 report from Glasgow University, which highlighted the need for Scottish companies to internationalise early on in their lives to boost sales.

"Axis-Shield has very attractive technology," Boyle said. "Diagnostics is a good sector to be in.

"One of the advantages of having big international companies developing drugs or products in Scotland is that it then increases the chances of them choosing to carry out their clinical trials here. That's one of the big prizes because it creates work for other companies in the sector."

There's a flipside to every coin though, with Scots firms also taking part as buyers in international M&As. In December, Axis-Shield splashed out $10m (6.4m) to acquire part of US peer Catch, while Alva-based medical testing kit maker Omega Diagnostics bought part of German group Allergopharma from drugs giant Merck for 5m in November.

Institutional shareholders, including Aviva and Edinburgh-based Artemis Investment Management, came out in support of Axis-Shield's decision to reject Alere's approach. And Seymour Pierce analyst Mike Mitchell highlighted the case of Advanced Medical Solutions, which was the subject of a bid by Consort Medical in February 2010 but now "remains an independent growth business and has effectively doubled in value since that point".Neil McInnes, head of technology in Scotland at accountancy firm Grant Thornton, adds that it all comes down to where decisions are made.

"If the decisions about a business are still made on the ground in Scotland then it doesn't really matter where the shareholders are based," he said.

That has certainly been the experience of Peter Allen, the chairman of Galashiels-based drug developer ProStrakan, which was snapped up by Japanese peer Kyowa Hakko Kirin (KHK) in March for 300m. So far, KHK has allowed ProStrakan to retain a lot of its independence.

"At the time, KHK said it wanted to use ProStrakan's sales force in the United States and Europe, and its drug development unit in the Borders. They've been true to their word and have kept the Scottish management team in place. Now we're building up the business to get ready for KHK's new drugs coming to the market in the next four to five years."