Ariad Pharmaceuticals (ARIA) Stock: Are Investors Losing Acquisition Hopes?

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Ariad Pharmaceuticals, Inc. (NASDAQ: ARIA)

Ariad Pharmaceuticals is having a horrible day in the market today. This comes after a massive climb last week in which the stock gained more than 40% in a single day. The climb ARIA experienced last week was a result of an announcement of talks between the company and Baxalta Inc (NYSE: BXLT) with regard to a possible acquisition. However, as more news of the possible acquisition surfaces, the stock is declining in a big way. Have investors lost hope in the deal actually going through? Today, we’ll take a look at what we know of the acquisition so far, what’s happening to the stock today, and whether or not BXLT is likely to acquire ARIA.

What We Know About The Acquisition Talks

While there hasn’t been much information shared about the talks, there are a few things we know. First off Baxalta wants to expand their oncology segment and Ariad Pharmaceuticals is known for their research into leukemia and several types of cancer. We also know that Ariad’s market capitalization is currently just under $2 billion and that Baxalta’s first offer was $2 billion, which was turned down. As far as my research tells me, the companies are still in talks at the moment.

What’s Happening To Ariad Pharmaceuticals In The Market Today?

As mentioned above, ARIA is having an incredibly rough day in the market today. Currently (1:00), the stock is trading at $7.32 per share after a loss of 19.46% so far today. We also saw downward movement yesterday and Friday. Based solely on the movement we’re seeing in the market, it seems as though investors aren’t as convinced that an acquisition is going to happen as they were last week.

Will BXLT Acquire ARIA?

In my opinion, the answer is a big NO! The reality is that for acquisitions to happen in the biotechnology space, companies need to see a decent premium. In fact, the average premium on an acquisition is generally around 50%. However, the $2 billion offer came with a premium just over 10% – far lower than the industry average.

The companies are still in talks, there’s no denying that. However, I think that the spread is just too wide. When we look at the poor premium offered, it’s easy to see that ARIA has expectations that BXLT simply isn’t likely to meet. We have seen acquisitions with 30% premiums (well below average, but we’ve seen them), but the premium offered was less than half of this.

Ultimately, Ariad Pharmaceuticals knows that it has something big to offer in the world of oncology. While Baxalta wants the data and pipeline offered by Ariad, they are going to have to not only want it, but be willing to pay for it; I just don’t see that happening based on what we know thus far.

What Do You Think?

Do you think ARIA will be acquired by BXLT? Let us know in the comments below!

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