Snag in Lilly Bid May Pay Off for Hybritech Holders

Eli Lilly & Co.’s proposed $300-million acquisition of San Diego-based Hybritech has been stalled--in a twist that could prove lucrative for Hybritech’s shareholders.

Lilly, a worldwide manufacturer of pharmaceuticals, acknowledged Friday that the deal may fall through because the two companies will be unable to complete the transaction before Jan. 1. Lilly said the companies were continuing to negotiate but “there can be no assurance that an agreement can be reached” before the Jan. 1 deadline established in the purchase agreement.

Officials at Hybritech, a leader in the rapidly growing field of genetically engineered products, declined to discuss the reasons for the delay.

Lilly said the deal stalled because there would not be enough time for Hybritech to notify its shareholders and hold a special meeting before the Jan. 1 deadline.

But analysts said the delay may give Hybritech more leverage in negotiations. Since the definitive agreement was announced Sept. 18, Hybritech’s stock has risen above the per-share offer price.

“Hybritech has (gained) the upper hand” in coming negotiations with Lilly because Hybritech can demand additional funds for the purchase, suggested Irving Katz, an analyst with San Diego Securities.

The acquisition, subject to Hybritech shareholder approval, would give Lilly an immediate presence in the genetically engineered products field.

Lilly agreed to pay $22 in cash or convertible notes for each of Hybritech’s 10.2 million shares of common stock, plus warrants that Lilly valued at $4 per share. Lilly also agreed to make future payments of up to $22 per share through 1995.

Hybritech’s stock closed Friday at $31 a share, up 87.5 cents and equal to its previous high. The stock was trading at about $25 before the acquisition agreement.

Lilly’s stock closed at $108.875, up 6.25 cents. Since September’s announcement, its stock price has increased 25%.

“Both parties could now legally walk away from the deal--Hybritech could ask (Lilly) for more money and start looking for another company, or the (original) deal could still be consummated,” said Munro Pitt, an industry analyst with Duff & Phelphs in Chicago.