Author Topic: ALIOY - Actelion  (Read 21796 times)

writser

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ALIOY - Actelion
« on: January 26, 2017, 02:26:35 PM »
Short writeup - I haven't done a lot of work on this. Curious to know if anybody else here has an opinion on it. JNJ (306b) is buying ALIOY (30b) for $280 per share or $70 per ADR. Current ADR price is $68 for a ~3% spread.

- Deal is through a tender offer with a 67% minimum acceptance threshold. Given that there has been a bit of a bidding war and shares are now trading at ~$68 up from ~$35 in November the price looks to be on the high side (above analyst estimates, also at first glance at 30x FCF) and is supported by both boards. I see no particular reasons for the tender offer failing.
- Deal also makes sense for JNJ, relatively small and they can use overseas cash for it, which would be taxed otherwise anyway (or so I would think).
- According to the press release deal is expected to close by the end of Q2 with the tender offer commencing next month.

The interesting part: JNJ will only take over the "core portfolio" of Actelion. Before the transaction, Actelion will spin off its research pipeline as a new company, called (very originally) R&D NewCo. NewCo will launch with ~$1b in cash according to the press release. Now, I'm no expert but if you are a 30b company and you spin off your R&D pipeline funded with 1b in cash then that should be worth something, right? Let's say at least 500m or ~$5 per share and probably more - these guys have a track record and are no biotech clowns.

So, depending on how you value the spinoff the spread is 5%-7% by my rough calculations. Looks quite juicy for a deal that is supposed to close in a few months. No tax inversion shenanigans, just a honest deal. Am i missing something? Swiss taxes? Antitrust issues? I couldn't find anything but what do I know ..

I bought a couple of shares.
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Haasje

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Re: ALIOY - Actelion
« Reply #1 on: January 26, 2017, 03:14:33 PM »
Cons
-IF it breaks downside could be large
-Looks like a high price which can't be good for close %

Pros
-Insiders insisted to keep the R&D core and adviced to hang on to the shares
-Insiders built up $30 bil Actelion from a spin-out
-Insiders will be doing what they do best: drug discovery and company building: https://www1.actelion.com/en/scientists/r-and-d-approach/index.page?
-JNJ has a tax angle value likely split between parties, can only be good for the smaller party
-Return ok without the R&D core, monstrous with it
-JNJ has the cash
-The deal is so JNJ continues to have a sizeable stake in the spin-off. I think this increases odds the spin-off is very undervalued.
-Equity in spin-off may be attractive for JNJ from tax perspective (not sure)
-Actelion shareholders likely to vote with founders
-Actelion keeps a partnership with JNJ going


writser

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Re: ALIOY - Actelion
« Reply #2 on: January 27, 2017, 10:46:34 AM »
More reading: https://valueandopportunity.com/2017/01/27/actelion-ch0010532478-merger-arbitrage-meets-spin-off/ . Not much news - not too much information out there yet afaik.
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Phaceliacapital

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Re: ALIOY - Actelion
« Reply #4 on: January 28, 2017, 08:10:06 AM »
JNJ needs this deal. I doubt it would not go through...
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indirect

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Re: ALIOY - Actelion
« Reply #5 on: January 28, 2017, 10:00:44 AM »
I agree. Spread is attractive for few months and Stub for free.

ccplz

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Re: ALIOY - Actelion
« Reply #6 on: January 29, 2017, 07:18:52 PM »
What do they have in the pipeline?

What is JNJ buying these guys for if not for their drug discovery ability?
« Last Edit: January 29, 2017, 07:59:10 PM by ccplz »

chrispy

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Re: ALIOY - Actelion
« Reply #7 on: January 30, 2017, 05:38:06 AM »
This is a pretty interesting deal.  One question for those that are more familiar with these; if there is a market correction but the deal continues forward and completes, would the $68ADR price stay relatively stable and only fluctuate based on the likelihood of this deal completing?

JayGatsby

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Re: ALIOY - Actelion
« Reply #8 on: January 30, 2017, 12:14:16 PM »
Has anyone checked the fees on the ADR? I haven't done much similar with ADRs but the dividends I get from other companies can sometimes have hefty fees attached.

Hielko

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Re: ALIOY - Actelion
« Reply #9 on: January 30, 2017, 12:43:34 PM »
ADR fees are as far as I know (almost?) always in the range of $0.02/$0.05 per share per year. Not an issue for a stock with this price. But if you buy a one dollar stock it can be huge.