Glossary of Hostile Takeover Terms with Discussion

Discussion in 'Allergan' started by Shoham, Jun 13, 2014 at 2:08 AM.

  1. anonymous

    anonymous Guest

    Penny for your thoughts, Dan, 551
     

  2. Shoham

    Shoham Member

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    No new thoughts. Just a re-iteration of old ones. With the merger premium (gain that will be made for each AGN share if the merger were to happen today at the deal exchange ratio) slowly growing -- rather than rapidly diminishing -- with the passage of time, Wall Street seems to continue to be skeptical.

    My own view thus continues to be that I consider, at this time, the merger to be "less likely than not." I will change my mind to "more likely than not" if, and when, there is an articulation of value creation that goes beyond the (lame, in my view) inversion gain. If the merger premium starts to disappear, it could be an indication that Wall Street is beginning to buy into the merger story (but it could also be an indication that Wall Street thinks the standalone stock can outperform the merger deal; it's easy to read a big premium as merger-skepticism sentiment, but harder to read a low premium as merger-acceptance. As many here recall, the failed Valeant bid often exhibited a small -- even negative -- premium).

    [For "verbiage calibration" purposes, I'll remind long-terms readers of this thread that with regard to the 2014 Valeant deal proposal my views were consistent that it was very unlikely to happen; and with regard to Actavis that it was. Here, with "less likely than not," I'm less resolute. There is a very real possibility that it will happen; I just think the possibility that it won't is greater.]

    Ok, you got my thoughts; now, how about that penny?

    Dan.
     
  3. anonymous

    anonymous Guest

    In the glass is half full metaphor, I still think the deal is likely to happen. However, I need to qualify this statement as I have with all of my other statements, that this opinion is based solely on the belief I have that the key players want this to happen and will brute force it to acceptance. I have to admit that I am less than impressed with the messaging that has come out (or lack thereof to be honest) in support of the deal from PFE and AGN. I had higher hopes that at JPM there would be some insights being shared or at least hinted at in terms of value creation. To date there has been nothing articulated. As Dan has been consistently stating, the deal appears to be only about tax savings. I am reluctant to hold out hope for much further clarity from PFE and AGN at the upcoming earnings calls, as recent history has shown that little new disclosure comes to light. From what I hear through the grapevine (other CP posts) there continue to be mutual visits by PFE/AGN senior leaders - so internally the powers that be are acting as if the deal is a "go". The key will be any new legislation that might get forced out as we approach mid year when the deal is likely to start clearing anti-trust scrutiny. If nothing substantive has been put in place to block the deal from a legal/tax point of view, and if nothing is preventing it from an anti-trust perspective then the management and BoD's will be jamming the deal through. Shareholder approval is required and right now the deal is only valued at ~$340/share based on PFE. AGN stock is taking a big hit because it is more impacted by IBB pressure and other political rancor on drug pricing, etc. So the spread based on AGN seems to be widening, but the relative volatility in AGN stock vs PFE more or less predicts this trend. I do believe that the current $340 is not enough to be convincing so PFE has to find a way to see its price increase. The spring buyback will help, but only by ~$0.85. If you believe the analysts and the $370+ required for AGN, then we need to see PFE get to $33 or above.

    So I'll up the ante and re-state my 2 cents here that I'm still on the more likely than not side on the deal, but admittedly until and unless PFE and AGN come out with compelling insight, the deal is looking more like a "you pick 'em" at best. We should all watch the arbitrage action on Tyco/JCO - another inversion. This recently announced deal might draw attention from the Street and it will be interesting to see what happens. If this deal can close earlier than PFE/AGN then it will pull the money away from any action on our deal. If it blows up or gets negative press, or both, then it might give a hint as to what to expect from the Street on our deal.

    P551
     
  4. anonymous

    anonymous Guest

    THANKS Dan & 551. Your pennies are on the ground, heads up! Always appreciate your thoughts
     
  5. Your analysis is comical and you are micro analyzing a given and totally missing the big pix. This deal WILL happen by end of Q2. I am cognizant of B. Saunders plans and timeline.

    Stop trying to impress the CP lemmings with your nonsense.
     
  6. anonymous

    anonymous Guest



    The only thing stopping this deal will be shareholders. PFE wants it badly, Saunders loves it, and frankly guys like me with lots of AGN stock will love it a lot more at $370 or more but not $340. Market is volatile for many reasons which in turn are pushing the entire Healthcare sector down. Hard to pinpoint how the Street views this deal and say they are not too in favor of it due to stock price drops, when the entire market is so volatile that China sneezing creates a -200 Pt drop in the market. As hurdles are overcome and new information released will determine the movement of this deal. To speculate any other way in this current market environment is nothing more than a typical opinion just like mine!
     
  7. anonymous

    anonymous Guest

    Larry, go find another post to ruin.
     
  8. anonymous

    anonymous Guest

    allergan by itself will be above 370 by summer... No deal!!!
     
  9. anonymous

    anonymous Guest

    Lol...now that is funny! Allergan will say bye bye this summer as we are about to be pfizerized!!!
     
  10. anonymous

    anonymous Guest

    Dan & 551; How low can it go AGN. It's 260ish today? Pfallergan management announcement today.
     
  11. anonymous

    anonymous Guest

    Dan,

    Any thoughts regarding why AGN/PFE would announce executives this early in the game? It was puzzling that this came out and not sure if it would be destabilizing for the employees. Thanks in advance.
     
  12. anonymous

    anonymous Guest

    Nothing has changed my opinion since my last post. The stock price is mostly a reflection of the pressure the sector is under. Also, PFE recently went ex dividend which took 30 cents off the price. Given the low share price PFE might start to initiate share buy backs in an attempt to boost share price if people are convinced in the P/E ratio in the short term. I've always been of the opinion that the principals want this deal. My recent post mentioned full steam ahead - which appears to be the case based on today's announcement of executive teams and structure. The timing is good because people need to see the conviction and they need something to point to for new value. I'm thinking the spinoff scenarios that were highlighted as 2018 initiatives might get some air time and partial visibility in the coming months. I expect share price recovery once the market gets it act together. We need about 12% increase in PFE to get to $370. That movement is not trivial if you look at PFE historical pricing. But some good news from the world and some share repurchases and it's easy to see 5% in the next month or so. Teva closes late March so that's a key date along with Feb 22 AGN earnings. I think we have the swings of late to look forward to until early summer. At that time we will see the likely deal price present itself. For now the market ups and downs dominate. Look for more reassuring announcements like today to soothe anxious investors.

    Deal is still on in my opinion.

    P551
     
  13. Shoham

    Shoham Member

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    I don't know if I'd call 2-1/2 months into a 5-months gestation "early," and, in any event, the top management decision should be front-loaded (so that the named managers can start organizing their prospective teams rather than jockey for position and politic against each other); so, if anything, this announcement is on the late side.

    In any event, it does not modify my expectations. Management have to continue going through as if the merger is a sure thing. There is a signed deal, and until it's called off, that's what they are supposed to do.

    The key question was, and remains, if the shareholders will vote for it. Some of the top shareholders are on record for promising to oppose anything below $400. My own math, and that of media articles points to numbers at least in the $370-385 zone. We are currently nowhere near that, not even in the same century. So, will those shareholders cave and vote for a merger? (I'm not sure about the rules, but I think you would need some significant super-majority to approve a merger.) I can't say for sure that they won't; but I remain "less likely than not."

    Dan.
     
  14. anonymous

    anonymous Guest

    The stock price movements almost exactly mirror the respective indices: IBB for AGN and Pharm ETF for PFE. These indices are down 25% and 12% from the unaffected prices before the deal. AGN is actually faring better (not down 25% but closer to 15%) because it isn't really a Biotech, although it usually is lumped more into this index than pharma despite being a pharma. So the bottom line is most of the share price pressure is market based not deal based. None of this makes the convincing of shareholders any easier of course! Dan, I and others have been saying this all along. There needs to be shareholder value that is convincing. So far this hasn't been accomplished but with the weight of the sector against the shares, I'm not surprised. Let's see what Management does to convince shareholders in the absence of stock price movements. It might not be possible if the overall market is so unfavorable. We still have 6 or so months to go so who can predict!

    P551
     
  15. Shoham

    Shoham Member

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    Hi everyone:

    The market, as a whole, has been rather volatile recently, driven by confusion about the effect of a visible, but not yet well-understood, bundle of correlated mega trends such as the apparent tapering off of rapid economic growth in China, sustained historically low oil prices, and complex geopolitical transformations in the Middle East, Russia, and Europe. Our own sector is farther confused by congressional hearings and attention from viable presidential candidates (who are now more focused on drug pricing than inversions).

    So, how can one disambiguate share price movement connected to perception of the Pfizer deal from the broad market volatility?

    The easy answer is that because this is an all-stock deal, one need only look at the premium. If the premium is high -- the market is doubtful. If low -- less so.

    On November 23, 2015, the day the deal was announced, the share prices of AGN and PFE were, respectively, $301.72 and $31.33. At the announce deal exchange ratio of 11.3-to-1, the deal premium was $52.31 ( = $31.33 * 11.3 - $301.72 ), or 17.3% ( = $52.31/$301.72 ).

    As of the market close on Monday, February 8, 2016 (yesterday), the share prices were $266.30 and $28.56, leading to a premium of $56.43 ( = $28.56 * 11.3 - $266.30 ), or 21.2% ( = $56.43/$266.30 ).

    So, the premium has gone from ~17% to ~21%. Ergo, the market is more doubtful about the deal now than it was then. I would go even further and argue that even if the premium had remained largely unchanged, a failure of the premium to decrease with time would still be an indication of increasing doubtfulness since the premium can now be earned over a shorter investment time frame. (Someone who believed that the deal would happen, could have shorted 11.3 PFE shares and longed 1 AGN share, and then waited for the deal to close. At which point, they would use the 11.3 new PFE shares they got for their AGN share to cover their short and walk away with the $52 premium as their profit. The only risk is if the deal doesn't happen. If someone were to do the same today, not only would they be making more profit [$56], but they would do it in less time [because the merger date, whenever it is, is closer now than it was in November]. Therefore, it must surmise that the risk that the deal doesn't happen is higher).

    A common rule of thumb about the minimum price for a corporate takeover is 20%-50% above the 52-weeks high. Why? Because most shares owned today were likely also owned by the same shareholders when that high happened. If those shareholders didn't sell on that day, then they must believe that the shares are worth more. How much more? Hard to tell, but anyone who thinks they can convince a majority of long-term shareholders to part with their shares for less than 20% above a number they already said "no" to, is not being serious. The daily change in share price is driven by people who are buying and selling, but does not tell us what the long-term shareholders think the shares are worth. It is those long-term shareholders that carry most of the votes.

    For AGN, the 52 weeks high is $340. This gives us a minimum merger price of $408 ( = $340 + 20% * $340 ).

    The current deal value is about $323 ( = $28.56 * 11.3 ). This is below $340 -- a number that most existing AGN shareholders already said "no" to (by not selling when the price was that high). Will they be so convinced that $340 isn't coming back (or that post-merger PFE has a super-bright future) to say "yes" in a vote? It would sure take some major convincing.

    We are not even in the same century right now.

    Dan.
     
  16. anonymous

    anonymous Guest

    Give it time. The long term investors are waiting for hurdles to clear. The market is down too. In a few months it will look better. The deal IS happening because the Co's want it. The traders do not rule the day it's the long term shareholders.
     
  17. anonymous

    anonymous Guest

    I don't agree with this statement. Either the poster did not read the information shared or they don't understand wall street. What company stock Loses almost 10% of it's value after an announcement to merge? Numbers don't lie. Thanks to 551 & Dan; I am in the less then likely opinion and appreciate the intelligent discussion.
     
  18. anonymous

    anonymous Guest

    Actually most pharma and biotech companies in the sector decreased even more than 10% since the merger announcement.
     
  19. P 551

    P 551 Guest

    Read the recent article from Merrill on PFE. Very interesting and it explains many of the issues raised here. Analyst average estimate for PFE in 12 months is $39.44 and this assumes some positive impact from AGN. Average analyst estimate for AGN is $367.4. Assuming the 11.3 multiple one can assert that their AGN shares would be worth $445.67 based on the 12 month price target average. That represents a 21% premium over the average 12 month price target of AGN. As an employee with options in AGN or a long term shareholder, this might be attractive 12 months out. Shorter term exits will require the share bump that we have all been discussing. Many analysts appear to be bullish on PFE. A side note: PFE shares have had an avg price, adjusted for dividends and splits, of $29.32 since Jan of 2013. The high was $35.23. So right now we are nearer the low end. PFE is not a stock that excites due to share appreciation, but we all know that. Conversely it is stable and can be expected to have a high dividend yield. For AGN investors, this is a major change in perspective. From a PFE shareholder point of view, seeing growth from an avg of ~$29 to nearly $40 (if analysts are right) might be very welcomed!

    P551
     
  20. anonymous

    anonymous Guest


    Yes! This deal will be decided by shareholders, and most PFE shareholders are longs that love the stability of PFE as well as the dividend! Throw the M&A numbers analysis out the window. Means nothing with this market right now. The potential upside for shareholders is mouth watering.