ALIOY - Actelion

[netnet]

If the deal goes through as expected the stub will be free, BUT the risk is the deal will not go through.  If you wait, the stub, will probably trade down from it's when issued price. which is still more expensive than free, but one risk will be removed.

For me the downside of a broken deal is too high.  I will wait for the spinoff.

I should add that I like well funded heath tech/biotech/drug discovery spinoffs.  They seem to do quite well.

[indirect]

Buying stub after the distribution lessens risk at a price.

Buying well financed spinoff, you always have to wonder if the management  couldn't sell to PE or competitor or wants to get rid of problem subsidiary. e.g. spne, agfs from dow, CRC loaded with debt ( 6 billion) from parent. This is obviously not the case here.

[rb]

Anyone know why this thing was down 6%?

[udravi]

From Deutsche Bank:

Actelion shares are trading down on news that the French drug agency (ANSM) has recommended in a letter to physicians that new patients should not be initiated on Actelion’s drug Uptravi (~40% of 2020E sales) pending investigation into reports of patient deaths on initiation of therapy. The relationship between
these deaths and Uptravi is unclear. The letter is believed to have been made prior to the confirmed offer from J&J but has only now been picked up by the market. We believe it is most likely that J&J was aware of the warning prior to its confirmed offer to acquire the company but we are awaiting confirmation of this.
We believe the measure is likely to be precautionary and we remind investors that Uptravi’s efficacy and safety has been proven in a large randomised Phase III trial and ~1500 patients were initiated on drug in the US as of the end of 3Q16 with no similar action by the FDA. Given the seeming rarity of these events, it is likely to lead to (at worst) tightened precautions and warnings when initiating patients on therapy. This is unlikely to materially impact the drug’s commercial opportunity or conclusion of the transaction.

From Reuters

The trader said the spectre of potential problems with Actelion’s newest PAH drug have prompted market uncertainty even though the French advisory was issued before J&J announced its $30 bln takeover of Actelion on Jan. 26

[rb]

Thanks

[antao]

Quick additional notes:

1. R&D NewCo will be led by Actelion founder and CEO Jean-Paul Clozel and Jean-Pierre Garnier, Actelion’s chairman, will be its chairman.
2. The shares of R&D NewCo will be distributed to Actelion's shareholders as a stock dividend upon closing of the tender.
3. J&J will initially hold a 16 percent stake in R&D NewCo and will have rights to an additional 16 percent of the company's equity through a convertible note. It will also get an option on ACT-132577, a product within R&D NewCo being developed for resistant hypertension and now in phase 2 clinical development.
4. The transaction is expected to close by the end of the second quarter, with J&J commencing the tender offer by mid-February.
5. R&D NewCo preliminary valuations start to emerge:
- Berenberg Bank: $1 billion to $2 billion
- Jefferies: 14 to 20 CHF per share
6. Downside if deal breaks is mitigated by the existence of other suitors like Sanofi & others (rumors include Shire, Novartis and Amgen).

We like this deal a lot and the spinoff part of the consideration - which is being largely neglected - may very well become a very lucrative investment.

[netnet]

Does anyone have the base rate on the number of deals like this that have not been completed?  Looks as if the only thing other than a Trump nuclear war would be 67% not tendering or some kind of major accounting scandal, I figure that it odds of the deal going through are 80 to 95%.

[roark33]

6. Downside if deal breaks is mitigated by the existence of other suitors like Sanofi & others (rumors include Shire, Novartis and Amgen).

If the deal breaks because of a MAC due to ph3 trials or Uptravi sales risk, then the mitigation might not be as great with the other suitors. 

[rb]

Based on the premium JNJ is willing to pay if this doesn't go through it will be because of a serious issue comes up. If that's the case I don't think a lot of other suitors would step up.

[roark33]

Yep, I agree with that point about "serious issues".  My reading of the MAC clauses don't seem to point to any concern with pipeline phase trials, only with reduction in sales of current approved drugs.  I think the market probably always undervalues these deals with uncertain stubs afterwards, like CVRs, etc.