Qiagen's bid divides Cellestis investors and board.

CRITERION: Tim Boreham
From: The Australian
April 12, 2011 12:00AM


NOT all investors are happy with the biotech deal bonanza that promises quickie gains after years of vapid promises.

Cellestis (CST) $3.46

Unmoved by the 24 per cent-plus premium on offer, a rump of long-standing Cellestis holders want to stymie the Frankfurt-based Qiagen's $3.55-a-share offer for the TB diagnostic group, unveiled last Monday.

The dissidents -- mobilised as the Cellestis Shareholders Action Group -- reckon they account for at least 30 per cent of Cellestis's share base, enough to block the 75 per cent approval threshold under the scheme of arrangement. Leading the refusenik push is Melbourne-based private portfolio manager Gavin Ross, who claims to account for 20 per cent of the register (both directly and via clients).

According to Ross, Qiagen is moving just as Cellestis gains traction with its diagnostic Quantiferon, which accounts for 5 per cent of the TB market and has been adopted by customers such as New York and San Francisco.

Quantiferon generated revenue of $45 million last year, but Cellestis (and Qiagen) expect double-digit growth. "The valuation is totally inadequate and doesn't reflect the progress of Cellestis or its future prospects," Ross says.

However, analysts at the Qiagen end opine the offer is, if anything, a tad generous. Morgan Stanley's US biowatchers say that at 6.5 times current-year revenues, the $355m valuation is at the "higher end of deals in this space".

As for Cellestis, chairman Ron Pitcher says the board received an offer which valued the company at "significant premium" to the prevailing price. "In the circumstances, the board obtained legal and financial advice and determined it appropriate to ensure that this offer was put to shareholders," he says.

Criterion agrees the offer looks generous on Cellestis's current earnings. But arguing all day about what the current-value worth of the blue sky potential is like groping an octopus.

Criterion had Cellestis as a hold at $3.47 after the shares rocketed on news of the offer. We revert to a sell: there's a danger of the shares retreating if the rebels have as much blocking clout as they claim.

Investors are only losing 8c per share by not waiting for the scheme documents, while the true believers can buy back in later if they please...



borehamt@theaustralian.com.au

The Australian accepts no responsibility for stock recommendations. Readers should contact a licensed financial adviser. The author does not