Ideas Elsewhere: Horizon Therapeutics (HZNP)

Merger Arbitrage


An interesting merger arbitrage opportunity in the ongoing merger of Horizon Therapeutics and Amgen was recently covered in this Value Investors Club pitch. It’s a $28bn mega-merger, that has been challenged by FTC. The core point of the thesis is that FTC will lose the litigation and the merger will be allowed to proceed.

Rare disease-focused biopharma Horizon Therapeutics is getting acquired by biotechnology giant Amgen at $116.50/share. Previously minimal spread widened to double digits when the FTC filed a lawsuit to block the deal. The trial is scheduled for September 11. The regulator appears unlikely to prevail in court as its case relies on a novel interpretation of antitrust law and has no precedent. The FTC has already admitted that HZNP and AMGN do not compete directly and have no product overlap – historically these were the key criteria for antitrust concerns in such mergers. Instead, the regulator’s concerns are centered around potential product ‘bundling’ – offering bundles of different medicines with a multi-product discount – to pressure insurance companies and pharmacy benefit managers into favoring HZNP’s two key products. Blocking the transaction based on hypothetical future bundling grounds could establish a negative precedent for the broader biotechnology industry. Most importantly, AMGN has already pledged not to bundle HZNP’s drugs. Background of the judge, who is assigned to this case, also suggests a favorable outcome for HZNP/AMGN. AMGN’s CEO recently reaffirmed expectations that the transaction will be finalized by mid-December.

Even if the merger was to be derailed, the potential downside might be cushioned by the previous presence of other parties interested in HZNP. For instance, Sanofi had previously submitted several buyout offers to acquire HZNP, including one at $110/share, before eventually losing the bidding war to AMGN.

Note: The ‘Ideas Elsewhere’ section is intended to highlight interesting event-driven investment ideas by other authors. These ideas are not my own, and I am simply summarizing them to bring attention of SSI subscribers. I do not intend to actively follow the developments of these ideas, so you should expect limited updates or follow-ups in the comments section.

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