ICU Medical and Warner Chilcott Trades
I initiated a small position in ICU Medical, Inc. (Ticker: ICUI) today at $67.22. Bloomberg has reported that the company has hired JP Morgan to evaluate a potential sale. Analysts have mentioned a buyout price of $80 plus, which I tend to agree is a reasonable price. I believe there’s a good chance that a deal materializes. This company will appeal to both strategic and PE buyers. It’s going to take some time, but I’m comfortable with a small position for now.
It was a wild day with Warner Chilcott, PLC (Ticker: WCRX). Bloomberg
reported this morning that Warner Chilcott was in talks to be acquired by Actavis (Ticker: ACT),
Inc. I took a stab at Warner Chilcott at $17.68 and got out at $18.67
generating a 5.52% gain. This one was just too speculative to hold on right
now. Warner Chilcott has been shopped around extensively in the past and could
not find a buyer. If a deal does not materialize with Actavis, it’s over and out
for Warner Chilcott. I’ll definitely be keeping a close eye on this one.
posted by Money Turtle @ 4:08 PM
16 comments
16 Comments:
MT,
ICUI,
Something prompted them to hire an advisor. What can you find out? Its very early in the process. I may join you at some point in the near future. Good Luck until later.
WCRX
I read the news and observed the stock price action on Friday for both ACT and WCRX. Remember there is always a reason why this news was leaked. Who would benefit the most from this news leak?
Given WCRX was in play last year, do you recall any history on why WCRX was not able to strike a deal with a strategic or PE group? What is attractive about the WCRX business? I wonder if ACT is pursuing an acquisition partly as a defensive measure to keep VRX or others at bay?
What did you mean by, "If a deal does not materialize with Actavis, it’s over and out for Warner Chilcott."?, besides the stock price taking a nose dive.
Regards,
inforesource7
ICUI: From various reports, it appears that the company has tried to unsuccessfully to acquire competitors. You need size and scale to compete effectively in the medical devices. The CEO is also close to retirement with no apparent successor. On a fundamental basis, this is a well run company and will do well even without a deal.
WCRX: I don't have any info as to why they weren't able to sell themselves last year. WCRX will add nicely to earnings to ACT at the right price. I'm just saying that it will be difficult for WCRX to recover since no one wants to acquire them.
MT,
OPTR popped today at end of day. Astrazeneca and Cubist were said to make first-round bids for Optimer. No other details available at this time.
Regards,
inforesource7
Nice call on OPTR. Also have Astellas bidding according to Bloomberg.
MT,
I read the bloomberg article on OPTR interest. The fact that each has a marketing agreememt for DIFICID that collectively covers the globe is a plus. Whichever potential bidder wins, captures the global sales aspect. I will throw in one more potential sleeper. OPTR hired an interim CEO a while back and recently a COO. Both have previously worked for PFE in the past, so PFE could be a silent bidder. Also note how last weeks earnings report knocked down the stock price. I bet it was planned. This was a very good time for smart money entry.
WCRX, I picked up some deep in the money calls today in hopes ACT will reach an agreement. I read in bloomberg where ACT was involved in the auction process last year. Maybe both sides have a better understanding this time around on what it will take to get a deal done.
Regards,
inforesource7
MT,
Since you like IPO's did you ever consider Quintiles Transnational Holdings (Q)? They are a Contract Research Organization (CRO), that has a history of being taken private, sold amongst a few owners and then IPO recently. Apparently demand for their services is very high and a has been a growing trend for many years. They supposedly have a very high success rate with the FDC and approvals.
Regards,
inforesource7
OPTR: I just worry that the recent earnings disappointment may dampen the potential buyout premium. I haven't seen any numbers floated around for this one.
I'm starting to feel a bit more comfortable with WCRX. Currently holding a position with a $19.13 cost basis.
I'm not too crazy with Quintiles Transnational. The PE firms have loaded this one up with debt. I generally avoid the IPO's from the private equity exits.
MT,
OPTR - I understand your concerns. If you have time study the last earnings report. One item I gleamed was the CEO hired a COO to manage the DIFICD product while the CEO focuses on the strategic review. This may explain why the earnings were off. PE groups are not bidding, only strategics. I will take a look at the numbers and see what I can predict.
Q i if you look at the financials, the revenue per share and free cash flows look good. While I agree PE like to add debt, they only add what the business can manage. They are not in the business to IPO a company that will fail. Q is due to report earnings soon.
Regards,
inforesource7
MT,
WCRX - welcome aboard. Good Luck to us both. Here are some goodies.
Bloomberg article says "Actavis is discussing a bid of more than $5 billion for Warner Chilcott, said another person. A deal could be completed in the next couple of weeks, that person said."
A $5b market cap = $20 / share. the article says for more than $5b. My bid guess would be low to mid $20's. For reference, recent price high May 2011 = $25 All time price high Aug 2010 = $30.
WCRX board has John Connaughton an Independent Director who worked at BAIN Capital and has healthcare background. Look at WCRX top stock holders. Bain Capital owns 4.59% which they added last year after the strategic review yielded no deal. I mention this not to suggest BAIN will bid but that the board has good representation in the negotiation process.
"Actavis & Warner Chilcott: A Deal of Great Logic
Warner Chilcott is a much more intriguing option for Actavis in terms of benefiting shareholders. The company is seeing a decline in annual revenue thanks to new generics for Actonel, among others, but has a solid pipeline and recently was awarded new FDA approvals. The company was reportedly shopping itself last year, and with there being no takers, Actavis might be able to acquire the company cheaply.
Aside from Actavis being able to add an addition $2.3 billion in annual revenue, the company could also acquire a company trading at just five times next year’s earnings. Contrary to popular belief, Actavis is not just a generic company, but also has a pharmaceutical development segment, and could use Warner Chilcott’s presence and technology to improve both its operational and development strategy. This means that the acquisition could produce great synergy with higher profits and greater revenue growth.
The key to watch as talks progress with Actavis and Warner Chilcott will be debt negotiations and the part it plays in determining a premium for the offer. Warner Chilcott has almost $4 billion in debt and Actavis has another $6 billion in debt (still less than Valeant), and judging by the performances on Friday, I’d say we’ll hear an offer sooner rather than later."
Regards,
inforesource7
MT,
Considering the ACT stock price has moved much higher over the past few weeks any ACT bid for WCRX would most lilely include cash and stock.
Here is a bloomberg article that addresses any combo and the valuations. WCRX seems to be in a better drivers seat this time around versus last year.
http://www.bloomberg.com/news/2013-05-15/actavis-gaining-more-from-purchase-than-sale-real-m-a.html
Regards,
inforesource7
MT,
FYI OPTR late day stock pop caused by reuters article.
http://www.reuters.com/article/2013/05/15/optimer-sale-idUSL2N0DW32L20130515?type=companyNews
Regards,
inforesource7
MT,
OPTR - based on the last two quarters of financials its hard to grasp a complete understanding of the value because EBITDA, Operating Cash Flow and Levered Cash Flow are all negative. They are spending more than they are making. They have $93.35m in cash and no debt. At $16.18 the price sales ratio is 6.51x
9-22-11 all time price high close $16.87
9-23-11 all time intra day high $17.95
5-15-11 intra day high $16.80
I believe the stock price action @ 3:45pm took out many upper buy stop orders (short covering) more so than new buyers as OPTR has short interest of 8,185,377m shares or 17.62%. This explains the unstable stock price action.
I refer back to a 04-02-13 bloomberg article titled "Optimer Said to Draw Takeover Interest From Glaxo" for a quote "The maker of the antibiotic Dificid aims to fetch as much as $1 billion in a possible auction, said the people, who asked not to be named because the process is private." this equates to $20 per share.
The updated reuters article below sheds some light on the CBST $20 offer. Based on this article OPTR price expectations may be higher than what CBST may now want to bid.
http://www.reuters.com/article/2013/05/15/optimer-sale-idUSL2N0DW3FI20130515?feedType=RSS&feedName=mergersNews
Think about the real strategic reason to acquire OPTR based on any patents, global product use, etc.
After reading update reuters article, based on what you have learned, which strategic buyer would benefit the most from acquiring OPTR and do you think OPTR will achieve their $20 price?
Regards,
inforesource7
MT,
FYI, ACT/WCRX wsj-online article 5-15-13 "Novartis Considers Possible Bid For Actavis". In after hours ACT stock price spiked higher and WCRX stock price dropped lower. Buckle up as ACT appears to be a prime target for a few players. I am still focusing on WCRX and will look to average down Thursday morning at the open (9:30AM) if the price and my sentiment is right.
I don't have access to WSJ-online but my brokerage account showed the story under the WCRX stock symbol and not ACT.
I would be interested in your thoughts after you have time to digest.
Regards,
inforesource7
The article does not really bring anything new to the table. Just summarizes a lot of old info. Here's the link to the article:
http://online.wsj.com/article/SB10001424127887323398204578485494024877354.html?mod=googlenews_wsj
Novartis would have to pay up big if they were to go after ACT. They are disciplined buyers and they typically don't over pay.
The way I see it, the ACT and WCRX will be a home run deal, which allows ACT to be independent. Someone will need to make a blow out offer for ACT for them to accept.
Also Google: Drug Firms Stalk Actavis Deal and you should be able to see the full article.
Bloomberg now reporting that Novartis has no intention of pursuing Actavis.
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