Third Point Wants Amgen to Explore Separation -- Update

By David Benoit and Juliet Chung 

Activist investor Dan Loeb revealed his Third Point LLC has built a stake in biotechnology company Amgen Inc. and is calling on the company to explore breaking into two separate businesses, according to a letter he sent to Third Point's investors, a common refrain among activists lately.

Mr. Loeb said at a conference Tuesday that he was a top 15 holder in the company.

In a letter to investors Tuesday, Third Point wrote that Amgen "has all the hallmarks of a hidden value situation, one of our favorite investment themes." The biotechnology pioneer has a "compelling mix" of both established and new products, the letter said, but trades at a significant discount to peers.

Third Point said the company has several options to unlock value but is urging Amgen's board to consider "a more radical" option: breaking up, according to the letter. The investor suggested splitting the company into a cash-generating mature business and a faster-growing R&D focused business.

Third Point also suggested value in Amgen "can be easily unlocked" by making its research and development process more efficient, making deeper cuts in its "bloated cost structure" and addressing its deal making. Third Point said it believed most of Amgen's recent deals would produce "mediocre returns."

A spokeswoman for Amgen didn't immediately respond to a request for comment.

The letter said Amgen's stock could get to $189 a share by the end of 2016 and $218 a share by the end of 2017 if the company completed the work on costs and R&D. But if the company went forward with a split, Third Point believes the stock could be worth $249 a share in two years.

Amgen shares jumped 4.2% to $143.27 in recent trading after The Wall Street Journal reported on the position.

Amgen's stock was up 22% this year heading into Tuesday and had risen sharply since July, when the company announced some plans to cut costs and 15% of its workforce.

The company, which has a market capitalization of about $100 billion, is the largest biotech company by sales. But the products that propelled its growth are aging, and some are facing the threat of low-cost competition.

Third Point's letter applauded Amgen for taking some steps to improve costs in July and said management has been "open--minded and receptive to our ideas."

"We firmly believe that the company is at an inflection point," Mr. Loeb wrote. "We hope to maintain our constructive dialogue with management as the company moves towards closing its valuation gap."

Third Point raised $2.5 billion weeks in about two weeks this August, telling investors it planned to use the cash to take activist stakes in several large companies in the U.S. and abroad. The New York hedge-fund firm, which now has about $17.5 billion in total assets, could use the money by year-end, people familiar with the matter said at the time.

Third Point told investors that Mr. Loeb hoped to work constructively with management teams in his coming activist positions.

Third Point's suggestions to Amgen fits a trend in activism to split up large corporations into more focused businesses that can draw different investor types. Third Point's letter said investors would value differently the older business and the growing business, a common argument for such breakups.

Write to David Benoit at [e-mail] and Juliet Chung at [e-mail]

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