Glossary of Hostile Takeover Terms with Discussion
- Thread starter Shoham
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- Shoham Apr 02, 2016 at 04:41: PM
Shoham
Member
Your analysis is not wrong. It is the classic Wall Street dilemma of whether one should more look at the jockey or at the horse. If a jockey with an unbelievable winning streak is riding a horse that looks sickly and weak, are you going to bet on that horse winning the race? Some might say that the jockey knows horses better than they do, and if he choose to race on that horse, you can bet he will win. Others might take a look at the horse and say that there is no way this horse is going to cross the finish line first, no matter who the jockey is and what he says. Who is to say which betting philosophy is right?
My own view is that when the enterprise is small and nimble, the team at the top can make miracles happen. When it is large and sophisticated, a bad team at the top can do a lot of damage; but an exceptional team is not going to do much better than a merely excellent one. In a local county horse race, an amazing jockey could bring a sickly horse to victory; but on the national circuit, where all jockeys are excellent or better, only top horses win.
In this case, the jockeys (the two CEOs) have some amazing winning streaks. Their ability to prep and ride horses should never be underestimated. But the horse (the value creation of this merger) looks weak and sickly. Will they bring this horse to a win? Only time will tell for sure, but the betting board is showing some long odds against them (the spread).
Dan.
Very good, thank you. Nice analogy, crystal clear as usual Dan!
You're not wrong. The spread is large but it will narrow. The deal is too far away for people to risk money now. Dan is against the deal so he goes out of his way to make it look like an impossibility. These CEO's will find a way to convince shareholders. PFE is worth more and AGN is not worth what some people think. This deal WILL happen...just wait!
I am a shareholder (private) and Not Convinced. I will vote "NO" May 5th, particularly to the current board. I think this company needs a fresh start and I am Not Dan.
- Shoham Apr 02, 2016 at 08:17: PM
Shoham
Member
I seem to remember hearing it in a video clip quoting MP. Unfortunately, I can't remember the exact clip and I didn't find it after a quick search (In my professional life, I document all my references; but I'm just doing this for fun).
Nonetheless, I did find something fairly close in the transcript of the investor call on on March 15 (the day the grace period was missed), Valeant said (emphasis mine):
Currently we have approximately $1.2 billion of cash on hand including the proceeds from recently revolver draws. Our revolver is currently drawn at $1.45 billion. We most recently drew our revolver to fund cash timing related to ordinary course in each of our operations, including anticipated upcoming debt payments.
[...]
our ability to borrow under the revolver is restricted while the default continues.
[...]
On the revolver we ended the year with $250 million drawn on the revolver, and we are now at $1.45 billion.
(Transcribed by Seeking Alpha: http://seekingalpha.com/article/395...-results-earnings-call-transcript?part=single )
So, on 12/31/2015 they had a $250M debt on the revolver line of credit. 75 days later, on 3/15/2016, the day they were cut off from further borrowing, they were at a whopping $1.45B. Meaning, they borrowed a total of $1.2B in the interim (which, in the clip I can't find, it was indicated that this maxed out their line). Remarkably, the cash on hand, is exactly $1.2B. (It's not the "exact same" $1.2B, some of the borrowed money was used to cover ongoing expenses and debt payments -- they go into modest details in the transcript -- and was replaced by cashflow from operations; but still, when cash-on-hand equals the amount you just borrowed, it's fair to say that your liquidity is from borrowed money).
Dan.
- Shoham Apr 02, 2016 at 08:31: PM
Shoham
Member
Hey, hey, hey; don't mis-attribute my position. I have been very careful to calibrate my language saying that this deal is "less likely than not" -- that's a long way from "impossibility."
Spending an hour gambling in a Vegas casino, you are less likely than not to make a profit; but it's not an impossibility.
Dan.
You're a minority then. Institutional investors will cave. You are vastly outnumbered I'm afraid.
- Shoham Apr 02, 2016 at 08:51: PM
Shoham
Member
Maybe it's just a coincidence, but a mere 24 hours later, the following headline appeared in, no less, the New York Time; referring to this exact same 2014 audited financials that PWC must now regret signing:
(http://www.nytimes.com/2016/04/03/business/a-valeant-boo-boo-may-portend-bigger-errors.html?_r=0)
Dan.
http://www.fiercepharma.com/story/c...medium=rss&utm_source=feedly&utm_campaign=rss
More revealing everyday. What do you think the response will be?
More revealing everyday. What do you think the response will be?
Dan,
What do you think about today's announcement by the treasury dept?
Allergan -19% following Secretary Lew’s remarks on corporate tax inversions http://www.seekingalpha.com/news/3171390
Update: Bloomberg: Valeant Pharma terminates sales team for female libido pill http://www.seekingalpha.com/news/3171391
- Shoham Apr 04, 2016 at 09:22: PM
Shoham
Member
What do I think? Does it even matter? The After-hours market has already declared a verdict -- no merger. The AH market, as of this moment, has AGN around $216; so the "spread" is now about $130 -- double the, already fantastically high, $65 of yesterday.
(Normally, I don't put much weight into AH numbers, because the bid-ask difference is very large; indicating sparse, unrepresentative, transactions. However, after a major news event, AH numbers can be quite meaningful, particularly if the bid-ask difference is low -- it is just a few pennies right now.) (I actually have a formula for using AH pricing: Consider the *bid*, *ask*, and last regular hours *closing* price; take the middle one of those three numbers. That's the real price.)
Anyone who still thinks the merger will happen, now has to explain a $52B spread (it was "just" $26B yesterday). That's enough money to buy the Brooklyn Bridge several times over.
Interestingly, the $65 drop now is almost the same as the $65 gain that any arbitrager would have gain if they locked their trade in yesterday and the deal would have eventually closed. In other words, the market was pricing the spread to a 50-50 shot of closing (if you do the arbitrage and win, you gain $65; if you lose, as actually happened, you lose $65).
So, in that sense, P551 and I were, basically right (or, at least, in synch with the market) when we were saying "less likely than not" / "more likely than not" (of course, I was "more" right
)My skepticism was always grounded in the argument that the value creation is meek and entirely depends on the questionable inversion benefits (and I used the spread numbers to show that the market thinks likewise). This is exactly where we are today.
Really, if there was some unarticulated value creation that the principals had in mind but were keeping to themselves, now if the time to say so (and quantify!); or forever hold their piece.
Dan
What do I think? Does it even matter? The After-hours market has already declared a verdict -- no merger. The AH market, as of this moment, has AGN around $216; so the "spread" is now about $130 -- double the, already fantastically high, $65 of yesterday.
(Normally, I don't put much weight into AH numbers, because the bid-ask difference is very large; indicating sparse, unrepresentative, transactions. However, after a major news event, AH numbers can be quite meaningful, particularly if the bid-ask difference is low -- it is just a few pennies right now.) (I actually have a formula for using AH pricing: Consider the *bid*, *ask*, and last regular hours *closing* price; take the middle one of those three numbers. That's the real price.)
Anyone who still thinks the merger will happen, now has to explain a $52B spread (it was "just" $26B yesterday). That's enough money to buy the Brooklyn Bridge several times over.
Interestingly, the $65 drop now is almost the same as the $65 gain that any arbitrager would have gain if they locked their trade in yesterday and the deal would have eventually closed. In other words, the market was pricing the spread to a 50-50 shot of closing (if you do the arbitrage and win, you gain $65; if you lose, as actually happened, you lose $65).
So, in that sense, P551 and I were, basically right (or, at least, in synch with the market) when we were saying "less likely than not" / "more likely than not" (of course, I was "more" right
My skepticism was always grounded in the argument that the value creation is meek and entirely depends on the questionable inversion benefits (and I used the spread numbers to show that the market thinks likewise). This is exactly where we are today.
Really, if there was some unarticulated value creation that the principals had in mind but were keeping to themselves, now if the time to say so (and quantify!); or forever hold their piece.
Dan
How about the following ...
Post Forest and Allergan acquisitions, Allergan PLC is now an $86B Market Cap company (using $220/share). Actavis paid $66B for Allergan, and $28B for Forest ($94B for the two, and ignoring all the other small acquistions along the way) ... the only thing differentiating this from Valeant is that Allergan CAN pay off a majority of it's debt once the divestiture closes.
- Shoham Apr 04, 2016 at 09:59: PM
Shoham
Member
Speaking of Addyi:
Around the time the Sprout deal happened, I looked up online the Addyi FDA clinical trials report. While I'm not a clinical trial expert, my day job does involves statistics (just not life sciences statistics) so I was able to read the report reasonably well; but I might have missed some relevant nuances.
In any event, I think the study had a critical flaw and that, in fact, Addyi is completely worthless (no better than placebo). But, I don't want to take this thought anywhere (beyond these pages) before I had someone who knows how to read clinical studies (and maybe where to find more relevant data) concur with me.
So: If anyone reading this think they can help, hit me here or through LinkedIn. I already did the math, I just need someone who knows this domain to look it over.
Dan.
- Shoham Apr 04, 2016 at 10:15: PM
Shoham
Member
Need to be a bit careful here. The relevant figure, when comparing what a company is worth to the total price paid for acquisitions, is Enterprise Value, not market cap (EV = Market Cap + Debt - Cash). Allergan has $86B Market Cap, plus $38B debt (for an EV of ~$124B). Once the Teva deal closes (assuming it doesn't, too, implode -- maybe now is a good time to get a little paranoid), Allergan will be largely debt-free (and still own a lot of really profitable products, including all the legacy-Allergan).
Valeant, on the other hand, has total acquisitions of about $40B, and an EV of about $40B ($8B market cap + $32B debt). So, if they, say, destroyed some value or overpaid (for instance for Addyi), and the value of their assets is actually less than $40B, then their share price is overvalued (even at it's current depressed valuation). If, in fact, the total market value of all the assets they bought is less than even $32B, then their equity is worthless -- they owe more than they own (equivalent of being upside-down on a mortgage and readying for foreclosure) -- and will be wiped out.
Dan.
Dan, I have followed you since the beginning. I have no words to describe my appreciation for your tutorial. As an AGN employee with my job on the line, Your insight has helped me keep my cool. Maybe now the board will get back to focusing on the company it has and not lining their pockets! Thank you so much!
So Dan had a valuation of Allergan stand alone at I think $280.For all of us who have been crushed by this news, what does the near term stock look like?
Will it rebound? Continue down a drain? Fluctuate lows until Teva? Is Teva still in play?
Dan and P551 any help would be a relief to us all
Will it rebound? Continue down a drain? Fluctuate lows until Teva? Is Teva still in play?
Dan and P551 any help would be a relief to us all
I'm not saying Allergan is in trouble of bankruptcy, just that EV will be less than what was paid for the parts. Because once Teva closes, debt goes to near zero, and MC will be close to EV. With EV less than what they paid, even with all the "synergies", they will have destroyed value.