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Serono changes course

Plan to raise $5.6bn of capital is met with scepticism in the market

Having failed to find a buyer after putting itself up for sale last November, Serono has changed tack and announced a plan to raise capital for potential acquisitions.

Europe's largest biotechnology firm said it would ask shareholders to allow the board to create new shares valued at SwFr7.3bn ($5.6bn), a move that sent shares down as much as 8.6 per cent.

Novartis, GlaxoSmithKline and most recently Astellas have all been linked with a move for Serono but the absence of any firm offers has caused concern in the market about the Swiss firm's future direction. Chief executive Ernesto Bertarelli hired Goldman Sachs as adviser in November after Serono halted research on three experimental drugs.

The stock would give Serono ìthe necessary flexibility to seize any financing opportunities, acquisitions and other strategic investments as they may arise,î the firm said in a statement.

Analysts were not overly impressed with the apparent reversal of strategy.

ìThe announcement clearly means Serono couldn't find a buyer at the price Bertarelli was asking for,î said fund manager Danielle Scilingo at Pictet & Cie.

ìThough it's not clear what is going to happen now, the latest move indicates the company is more likely to remain on a stand-alone basis and pursue takeovers,î said Bob Pooler, analyst at Lombard Odier Darier Hentsch.

He added that Serono should look for acquisitions that would improve its oncology business and renew efforts to reduce its dependence on Rebif, a multiple sclerosis drug that currently accounts for around half of its annual sales of about $2.5 billion.

Analyst Denise Anderson at Kepler Equities said the uncertainty over Serono's future direction had increased: ìThe longer you take to decide on strategy, the more the quality of assets will decay.î

If shareholders approve the share plan, Serono would have up to two years to use the capital to chase a large takeover or a string of smaller purchases that would involve a share swap. Serono will seek shareholder approval at its annual general meeting on April 25.

Reports in the Swiss media have suggested that Bertarelli could soon be stepping down. The 40-year old billionaire is understood to be organising a defence of his 2003 victory in the America's Cup yacht race and the market would welcome an experienced biotech executive at the helm of the Swiss firm.

30th September 2008

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