The news Tuesday evening that Cephalon (Nasdaq:CEPH) had received a bid was not all that surprising. Cephalon had long been a fixture on analysts' short-lists of biotech/specialty pharma companies that could be sellers in M&A transactions. To see the bid come from Valeant (NYSE:VRX), though, was surprising as few people had talked about this pharma company as an active bidder in high-value deals.
That said, and while the deal is far from a sure thing at this point, this deal makes quite a bit of sense and may be the best opportunity for Cephalon shareholders to get value for some time.
The Terms of the Deal
After what appears to be weeks of frustrated attempts to strike a friendly deal, Valeant went public with an unsolicited bid of $5.7 billion for Cephalon. This deal would deliver $73 a share in cash to Cephalon shareholders, an amount that Valeant would fund with debt from Goldman Sachs (NYSE:GS).
All in all, it does not look like a bad bid for Cephalon. It represents a 24% premium to Cephalon's prior close, and a 12% premium to the consensus analyst price target on the shares (for the very little that those are often worth). The deal also represents an EV/EBITDA of just under five and a forward P/E of over eight on 2011 earnings and almost 13 on 2012 earnings.
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