Biotech ETF Erases Losses in Minutes on Merck/Allergan/Biogen Mega-Merger Rumor

August 2, 2016 by

smart moneyFrom Tyler Durden: The iShares NASDAQ Biotechnology Index (ETF) (NASDAQ:IBB) surged seven points in two minutes this afternoon on rumors of a mega-merger involving biotech heavy hitters Merck, Allergen, and Biogen.

Moments ago, with the market in need of a catalyst to avoid breaching the dreaded 2,150 support level (as explained earlier by JPM’s Marko Kolanovic), it got that and more, when a WSJ story, ostensibly leaked by the paper’s traditional Goldman-based M&A source, hit about a takeover of Biogen by Merck and Allergan, sent the stock soaring, now higher by over 8%, to a market cap of $71 billion.

While the deal would not be as big as the failed Pfizer acquisition of Allergan, it would still be one of the largest takeovers in 2016, and certainly among the largest biotech acquisitions. Allergan being mentioned as a potential bidder is not surprising: in the aftermath of the failed Pfizer deal, and following the spinoff of its generics business to Teva, the company is left with significant balance sheet capacity and lots of cash to burn.

Here is the WSJ:

Biotechnology giant  Biogen Inc. has drawn takeover interest from drug companies including  Merck & Co. and Allergan PLC, raising the possibility of another huge deal in the health-care industry.

Merck and Allergan have each sounded out Biogen on the possibility of a takeover, people familiar with the matter said. The communications were informal and preliminary, and they may not result in a deal—in part because Biogen may not be interested, they added.

Biogen had a market value of $68 billion on Tuesday afternoon. It isn’t clear whether other large drug companies also are contemplating a purchase of the company, which is in the process of searching for a new chief executive.

And the reaction:

The IBB rose +0.90 (+0.31%) on the day to $294.97 in late afternoon trading. It had traded as low as 288.62 today before spiking nearly 2.5% in a matter of minutes following the news release.

This article brought to you courtesy of ZeroHedge.

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