Vectura shares surge amid bidding war between Philip Morris and Carlyle

A bidding war for Vectura (VEC.L) is heating up between Big Tobacco and private equity.

The UK's Takeover Panel has moved to set up an auction for Vectura after tobacco giant Philip Morris International (PMI) and private equity group Carlyle (CG) clashed for control of the business.

PMI returned with a higher offer for FTSE 250 (^FTMC) medical group Vectura on Sunday after Carlyle's (CG) bid on Friday.

PMI (PM), which owns brands like Marlboro, tabled a 160p a share offer for Vectura, which valued the business at just over £1bn ($1.39bn). The sweetened offer is 10p per share more than PMI's initial bid a month ago.

PMI was trumped by a 155p a share bid from US private equity group Carlyle last week. Carlyle initially tried to buy Vectura in May.

The Takeover Panel said on Monday the best way to resolve the bidding war was a 5-day auction, starting on Tuesday. Each side can table as many offers as they wish in order to find a final price that will scare off one party. PMI, Carlyle, and Vectura have all agreed to the auction.

Vectura makes medical inhalation technology and PMI's interest in the company has proved highly controversial, given the apparent conflict between tobacco usage and healthcare. Cancer charities have written to the government to raise concerns about the deal and business secretary Kwasi Kwarteng has said he is monitoring the situation.

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PMI sought to push back against critics over the weekend, saying the Vectura deal was part of its ambitions to "build on its leading scientific capabilities to develop products and services that go Beyond Nicotine". PMI announced ambitions to build a "smoke free future" in 2019 as part of ambitions to transform the business in the long-term.

Vectura would be run at arms length as an independent business, PMI said, and the company promised extensive investment.

"PMI intends to increase the total level of expenditure on research and development that it believes will further benefit Vectura's differentiated technologies and development expertise for the delivery of complex inhaled therapeutics," the tobacco giant said.

"In line with the UK's life sciences strategy and in keeping with the UK's position as a major scientific innovator, beyond supporting Vectura's growth, PMI believes these investments will support the scientific ecosystem in the UK for the longer term."

PMI also took a swipe at rival bidder Carlyle, saying PMI was "driven by a long term commitment to the transformation of its business and not a search for short term gains and efficiency."

Shares in Vectura jumped 2.4% on Monday morning to trade at 168p. The above-offer price suggests investors and traders believe the bidding war for the business still has further to run.

Vectura's board last week recommended that investors approve Carlyle's bid. Management have yet to comment on the fresh PMI bid.

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