* Facet's shares fall 2 percent in afternoon
* Biogen's $17.50 share expires at midnight Wednesday
BOSTON, Dec 16 - Facet Biotech Corp (FACT.O) said on Wednesday it agreed to allow The Baupost Group LLC, a big investor, to increase its stake in the company to as much as 20 percent, in a bid to fight off a hostile bid from Biogen Idec Inc (BIIB.O).
Baupost owned 3,506,875 Facet shares on Dec. 16, or about 14 percent of the company. An amendment to the company's shareholder rights agreement will increase the ownership limit for Baupost to 20 percent from 15 percent of the total outstanding shares.
As part of the agreement, Baupost has the choice to vote any shares it owns in excess of 15 percent either in the same proportion as other Facet stockholders, or in accordance with the recommendation of Facet's board.
Baupost has said it does not intend to tender its shares into Biogen's $17.50 a share tender offer.
Facet's shares were down 2 percent at $16.40 in afternoon trading on Nasdaq.
Faheem Hasnain, Facet's chief executive officer, said that, with Baupost's agreement, the company's two biggest shareholders, representing 28.7 percent of the company's stock, will not be tendering their shares.
Hasnain said the two stockholders want greater flexibility to acquire additional shares of the company.
As we have stated, we believe the $17.50 a share offer is inadequate and materially undervalues the assets of the company, overstates the liabilities and demonstrates an incomplete understanding of our pipeline and technologies, Hasnain said.
We are willing, on the basis previously announced, to provide Biogen Idec the opportunity to engage in due diligence discussions alongside other third parties, regardless of whether Biogen Idec further extends the offer or chooses to permit it to expire.
Cambridge, Massachusetts-based Biogen said on Tuesday it was prepared to launch a proxy fight to gain control of Facet's board if Facet shareholders tender a majority of their shares before Biogen's tender offer expires and the Facet board fails to comply with their wishes.
The offer is scheduled to expire at midnight on Wednesday. If a majority of shares are not tendered, Biogen said it will allow its offer to lapse.
Biogen's offer would value Facet at about $438.7 million, based on the total number of shares outstanding as of Oct. 27.
Biogen and Facet are jointly developing a drug to treat multiple sclerosis called daclizumab and a treatment for solid tumors called volociximab.
Biogen's shares were up 1.7 percent at $50.25. (Reporting by Toni Clarke; editing by Andre Grenon)