Investor: Just a few short weeks into the second half of 2003 and there continues to be a palpable improvement in confidence across financial markets

As is so often the case, this shift in sentiment originated in the US, where there is growing evidence that the economy is improving. Several important surveys of economic activity have begun to point upwards. For example, the most recent Philadelphia Fed survey pointed to stronger-than-expected conditions in the region's manufacturing industry.

This is a significant early signal that the depressed US manufacturing sector may be about to improve.

US housing starts and building permits data were also stronger than expected in June, reaffirming recent evidence of continuing strength in housing-related sectors.

Corporate America is also now well into the second-quarter earnings reporting season and reports are generally coming in ahead of consensus expectations. More than one-third of Standard & Poor's 500 companies have already reported earnings for the second quarter and close to 70 per cent of these reports were ahead of consensus expectations.

While these good earnings reports may not be enough to push the US equity market higher, they are probably sufficient to ensure that the market holds onto the gains of the second quarter.

Another indication that the worst of the bear market has well and truly passed is the increase in merger and acquisition activity.

In recent months, there has been a perceptible uptick in corporate activity and several leading investment bankers have been making positive noises about an improvement in the pipeline of corporate deals.

The Irish equity market seems to be participating in this trend as evidenced by the management-led buyout approach at Barlo and, more recently, the announcement from Galen that it was in talks that might lead to a bid for the company.

It has since said that those particular discussions have been terminated but the initial statement was enough to push Galen's share price up by 17 per cent.

While a number of pharmaceutical companies would find Galen attractive, the most likely suitor is US company Barr Labs. A relationship has existed between Barr and Galen since the mid-1990s.

Barr held a stake in Warner Chilcott, a company that was taken over by Galen, and Barr now manufactures some of Galen's products.

Galen is an integrated pharmaceutical company that focuses on the female healthcare market. Its main product is its proprietary drug delivery technology, intra-vaginal ring (IVR). The IVR technology can be used to deliver lower doses and consistent therapeutic levels of a wide range of female healthcare products.

Galen has also been building up a strong specialist US salesforce in recent years and it recently introduced its lead product, Femring (a vaginally delivered oestrogen therapy for menopausal women), in the US market.

The company also broadened its product range through the acquisition of Pfizer's women's healthcare pharmaceutical brands earlier this year.

This combination of a focused stable of branded products and a substantial US salesforce makes Galen an attractive target for companies aiming to build up their position in the US female healthcare market.

Galen's share price has been very volatile over the past 12 months.

Worries regarding intensified competition from generic products caused the share price to fall sharply around the turn of the year. But good sales figures enabled the share price to recover over the first half of 2003.

It rose by 34 per cent during the second quarter and was up by 8 per cent in the six months to the end of June.

Brokers' valuations for Galen vary but initial estimates of a fair takeover price have centred around £7.50 sterling (€10.50) per share. Trading in the market following the announcement that it was talking to a potential suitor brought the share price up to this level very quickly.

This suggests the market believes that, if the company is taken over, it will occur at a price higher than this.

Another factor that shareholders in Galen need to take into account is whether any offer for the company would be all-cash or whether it involves payment with shares in the bidding company. At a share price of €10.50, Galen is capitalised at close to €2 billion and would, therefore, represent a large acquisition for most of the likely buyers of the company.

Even before the breakdown of talks, Galen advised its shareholders to await further developments before taking any action. For most shareholders, and particularly private investors, this is good advice.

It is worth noting that developments in Galen will also be of interest to shareholders in Elan, which is one of the major shareholders in Galen with a stake of almost 4 per cent of the outstanding shares.