2nd UPDATE: Astellas Plans Unsolicited $3.5 Billion Bid For OSI

Astellas Pharma Inc. (ALPMY, 4503.TO) launched an unsolicited $3.5 billion bid to buy OSI Pharmaceuticals Inc. (OSIP) for $52 a share in cash, becoming the latest Japanese drug maker to go after a U.S. company.

OSI shares surged Monday, rising above the offer price, suggesting that Wall Street speculated that a higher offer might be needed to buy the maker of the cancer drug Tarceva.

Astellas, Japan's second-biggest pharmaceutical company by sales, said it has been attempting for 13 months "to engage OSI in meaningful discussions," although OSI has snubbed the takeover attempt as too low.

In a statement, OSI said its board rejected Astellas' same offer last month because "it believes Astellas' proposal very significantly undervalues the company." The company offered to provide Astellas with "non-public information which is fundamental to its valuation," but it said Astellas responded with its tender offer.

OSI said its board will review the tender offer, but the company advised shareholders to take no action at this time. An OSI spokeswoman declined to comment further.

The offer represents a 40% premium over Friday's closing price of $37.02. In response, OSI shares jumped 52% to $56.45 on almost 30 times its regular trading volume.

Analyst Eric Schmidt with Cowen & Co. believes that Astellas will be successful buying OSI with a "modestly higher" offer in order to close a deal on friendly terms, but he doesn't think other bidders will emerge. Schmidt estimates that OSI is worth $42 a share.

"Astellas's $52/share offer appears quite generous relative to our sum-of-the-parts analysis and OSIP's fundamentals are somewhat mixed," Schmidt said.

Morgan Stanley analyst Steven Harr expects other companies to evaluate OSI, and he believes that the current bid will need to go 10% to 15% higher, which could put the offer close to $60 a share.

Astellas offer comes amid continued interest from Japanese pharmaceutical companies in the U.S., as they diversify their business because of expiring patents at home.

Deals include Dainippon Sumitomo Pharma Co.'s (4506.TO) $2.6 billion buy of Sepracor Inc., Takeda Pharmaceutical Co. Ltd.'s (4502.TO) $8.8 billion acquisition of Millennium Pharmaceuticals, and Eisai Co. Ltd. (4523.TO) paying $3.9 billion for MGI Pharma Inc.

But the effort hasn't always been successful. Astellas' offer for OSI is almost a year after it dropped an attempt to buy U.S. biopharmaceutical company CV Therapeutics Inc. in a hostile takeover bid for the heart-drug maker.

In a similar situation to OSI, Astellas sought talks with CV until launching a $1.1 billion offer, but it was later outbid by Gilead Sciences Inc.'s (GILD) $1.4 billion offer.

Astellas' Chief Financial Officer Yoshihiko Hatanaka acknowledged that the process with OSI is similar to that with CV Therapeutics, but he stressed that "each transaction is very unique," in an interview Monday.

He declined to say whether the company is open to raising its offer or if it has changed the price at all since initially approaching OSI. He said the current represents the "fair and full value of Tarceva and the pipeline."

OSI's sole marketed product is cancer drug Tarceva, which it sells with Swiss drug giant Roche Holding AG (RHHBY, ROG.VX). The pill, used to treat lung and pancreatic cancer, had worldwide sales of $1.2 billion in 2009

Astellas has said it is open to speaking with OSI to reach a "negotiated transaction", but that the Japanese company also intends to nominate directors at OSI's upcoming annual meeting.

In pursuing a deal, Astellas has had several exchanges with OSI, including an hour-long meeting between the two chief executives in New York City last month, according to Hatanaka. Astellas said it has received a response from OSI that its offer "very significantly undervalues" the company.

Astellas hasn't been in contact with Roche about its offer, but Hatanaka said that OSI's agreement with Roche does not have change of control provisions.

Officials from Roche weren't immediately available for comment.

-By Thomas Gryta, Dow Jones Newswires; 212-416-2169; thomas.gryta@dowjones.com

(Jonathan D. Rockoff contributed to this story)

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