Genetics Institute Inc. and American Home Products Corp. saidThursday that AHP will acquire 60 percent of GI in a mergervalued at $666 million.

"We weren't shopping the company," GI Executive VicePresident Garen Bohlen told BioWorld. "This one came to us.They approached us with a concept that looked interesting tous and increased our chances to build a successfulpharmaceutical business."

Under the agreement, AHP of New York will acquire from publicshareholders 40 percent of outstanding GI common stock(NASDAQ:GENI) for $50 per share in cash, for a total of $366million.

AHP (NYSE:AHP) will also purchase for $300 million 9.5 millionnewly issued shares of GI stock. There are currently 14.6million shares outstanding.

AHP also has the option to purchase all, but not less than all,of the remaining 40 percent of GI shares at any time over afive-year period ending Dec. 31, 1996. Over this period, priceswill escalate from $50 to $85 per share by about $1.85 pershare per quarter.

Apart from the option, AHP may make open market purchasesof up to 15 percent of additional GI stock, which could bringits holdings to 75 percent.

When the deal closes, GI will have about 27.8 million sharesoutstanding, giving it a market valuation of about $1 billion,said Bohlen. AHP will hold 16.7 million shares and the publicwill have 11.1 million shares.

Including common shares, warrants and convertible preferredstock, GI's current valuation is about $693 million. GI stockclosed at $37.88, down 13 cents, on Thursday. The deal wasannounced late in the day, after the market had closed.

AHP stock closed at $68.63, up 50 cents.

"AHP provides a significant amount of financial strength viathe cash infusion," Bohlen said. "There is also an opportunityfor exchange of some complementary technology. AHP hasstrength in traditional drug development, plus someopportunities that involve development of biologicals as aresult of partnerships with other companies."

AHP is working with two other biotech companies, CaliforniaBiotechnology Inc. and MicroGeneSys Inc. AHP has an equityholding in Cal Bio.

"Our investment in Genetics Institute represents a quantumleap toward our goal of becoming a premier company in thefield of biotechnology," said John Stafford, chairman and chiefexecutive officer of AHP.

Products in GI's pipeline include bone morphogenic protein-2,for use in the repair of bone damage; interleukin-11 fortreatment of platelet depletion; macrophage colonystimulating factor to treat cancer and infectious diseases; andFactor VIII for hemophilia.

Cambridge, Mass.-based GI expects to incur a one-time chargeof about $30 million in transaction-related expenses. GIexpects the closing in early 1992, said Bohlen, hopefully inJanuary. GI shareholders must approve the deal.

GI, which will continue as a publicly traded company, will addtwo AHP members to its six-member board.

GI posted losses for the first two quarters of the year, butexpects to be profitable in the next two quarters.

-- Karen Bernstein BioWorld Staff

(c) 1997 American Health Consultants. All rights reserved.