Upon news that Amgen (AMGN)
has offered to buy Immunex (IMNX) for $16 billion in cash and stock, Standard & Poor's analyst Frank DiLorenzo upgraded both stocks to buy from accumulate.
Amgen plans to buy Immunex for 0.44 shares of Amgen plus $4.50 cash per Immunex share. S&P feels the offer is reasonable and believes there is solid upside left on both firms. Amgen is assuming peak annual U.S. sales of Immunex's Enbrel to be at least $3 billion, possibley $4 billion. S&P feels that this is realistic on expectations for growth in sales of the product for rheumatoid arthritis and new indictations going forward.
Amgen sees dilution in 2002 and 2003, with accretion in 2004 and a mid-20% EPS growth rate. On preliminary discounted cash flows of combined firms, S&P feels Amgen is worth at least $70.
On Immunex, S&P's net present value model has the stock valued at about $31 to $32 per share and feels the price paid is very fair due to expected substantial growth in Enbrel. S&P considers the elimination of American Home Products's (AHP) option on Immunex's pipeline a huge positive. S&P feels Amgen shares are undervalued.