Author Topic: ALIOY - Actelion  (Read 20223 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.
When you are dead, you do not know you are dead. It's only painful and difficult for others. The same applies when you are stupid.


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.
When you are dead, you do not know you are dead. It's only painful and difficult for others. The same applies when you are stupid.


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.