With the worst of the credit crunch over and plenty of cheap candidates, General Electric (NYSE:GE) may be about to become more active with acquisitions. With some oblique comments from a senior executive, it would seem that this American conglomerate is once again about to leverage its considerable capital resources. Investors may want to consider the sorts of companies that GE may be looking at as potential targets.
Sticking to the Knitting
Although GE is a frequently-mentioned name in the guessing game of healthcare acquisitions, the company is actually rather focused and consistent with its healthcare business. GE is a significant presence in the imaging, diagnostics, life sciences and healthcare IT spaces. By and large, the company steers away from interventional products, so the likelihood that GE would buy a company like Stryker (NYSE:SYK) is quite low.
Cancer Therapy
Although GE is not active in interventional medicine, Varian (NYSE:VAR) might be a logical way for the company to make that transition. An argument could be made that Varian's radiation therapy systems would be a natural extension of GE's diagnostic imaging products. Along similar lines, TomoTherapy (Nasdaq:TOMO) or Accuray (Nasdaq:ARAY) could get some consideration, though TOMO may be too small and Accuray too novel.
The link below will take you to the full article:
http://stocks.investopedia.com/stock-analysis/2010/Is-GE-About-To-Stir-Up-The-Medical-Arena-GE-VAR-VOLC-MASI-BRKR-TMO-ISRG1019.aspx
Showing posts with label buyout. Show all posts
Showing posts with label buyout. Show all posts
Tuesday, October 19, 2010
Monday, July 12, 2010
JNJ Paying Up For Quality
It was only a week ago that I wrote about Micrus Endovascular (Nasdaq: MEND) as a hot med-tech stock that investors should take a look at and consider for a growth-oriented portfolio. Well, I hope they looked quickly, because Johnson & Johnson (NYSE: JNJ) announced this morning that it was acquiring Micrus for $23.40/share in cash.
That is a total deal value of $480 million, but a rather small premium of only about 5%. The stock has had a strong run since mid-May, though, and some of the move from $16-and-change could have been a product of rumors and whispers about a deal. Given the relatively recent deal between Covidien (NYSE: COV) and ev3 (Nasdaq: EVVV), it seems even more probable that people were connecting the dots and assuming that MEND would get a bid.
Although I am a JNJ shareholder, I have ripped the company plenty of times for its M&A strategy -- the company often pays too much and gets too little.
I really actually do like this deal, though. First, JNJ is by no means overpaying. JNJ is paying about 4.2 times trailing sales for Endus, and that is a good price. Growing small-cap med-tech companies often normally trade at 4 or 5 times trailing sales, and buyout premiums usually push that to a 6-8x range.
Second, Micrus has good technology on the market that integrates nicely with Johnson & Johnson's existing neurovascular intervention business. Not only have Micrus's products shown strong clinical results, they have actually sold well in the market and become something of a threat to rivals like Boston Scientific (NYSE: BSX). In my analysis, then, the combination of MEND's high-quality embolization coils and JNJ's existing business is a strong one.
I have to say, though, that I wonder if these deal actually goes through at this price. There are several other companies that could make a lot of hay from the Micrus assets, and the deal price is not so high that these other companies could not come in with a sweeter offer. If you are a Micrus shareholder, that is something to look forward to; if you are a JNJ shareholder, it is something to dread.
Who else could get involved? How about Medtronic (NYSE: MDT), Cook, or Bard (NYSE: BCR)? Certainly BSX could be interested as well, but I doubt that they have the balance sheet liquidity to do the deal, and I really doubt that Micrus shareholders would be thrilled about getting BSX shares instead of JNJ cash.
At the bottom line, I had modeled that MEND was worth about $25 a share. Given that MEND's management was willing to take less than that, I wonder where my model might have been a bit too optimistic. In any case, that spread between my fair value and the deal price is what a former boss of mine would describe as "close enough for jazz", so I am not going to worry about it too much. Moreover, I have also felt that JNJ needed to get more aggressive in finding new growth opportunities, so this is a deal and a price than I can live with pretty happily.
I would still recommend investors buy shares of JNJ. I also wonder if MEND shares are not worth a shot as an arbitrage play - so long as you can get the shares at a price that will still leave you with a profit after commissions, it might be worth the gamble to see if another bidder appears.
Disclosure - I own shares of JNJ.
That is a total deal value of $480 million, but a rather small premium of only about 5%. The stock has had a strong run since mid-May, though, and some of the move from $16-and-change could have been a product of rumors and whispers about a deal. Given the relatively recent deal between Covidien (NYSE: COV) and ev3 (Nasdaq: EVVV), it seems even more probable that people were connecting the dots and assuming that MEND would get a bid.
Although I am a JNJ shareholder, I have ripped the company plenty of times for its M&A strategy -- the company often pays too much and gets too little.
I really actually do like this deal, though. First, JNJ is by no means overpaying. JNJ is paying about 4.2 times trailing sales for Endus, and that is a good price. Growing small-cap med-tech companies often normally trade at 4 or 5 times trailing sales, and buyout premiums usually push that to a 6-8x range.
Second, Micrus has good technology on the market that integrates nicely with Johnson & Johnson's existing neurovascular intervention business. Not only have Micrus's products shown strong clinical results, they have actually sold well in the market and become something of a threat to rivals like Boston Scientific (NYSE: BSX). In my analysis, then, the combination of MEND's high-quality embolization coils and JNJ's existing business is a strong one.
I have to say, though, that I wonder if these deal actually goes through at this price. There are several other companies that could make a lot of hay from the Micrus assets, and the deal price is not so high that these other companies could not come in with a sweeter offer. If you are a Micrus shareholder, that is something to look forward to; if you are a JNJ shareholder, it is something to dread.
Who else could get involved? How about Medtronic (NYSE: MDT), Cook, or Bard (NYSE: BCR)? Certainly BSX could be interested as well, but I doubt that they have the balance sheet liquidity to do the deal, and I really doubt that Micrus shareholders would be thrilled about getting BSX shares instead of JNJ cash.
At the bottom line, I had modeled that MEND was worth about $25 a share. Given that MEND's management was willing to take less than that, I wonder where my model might have been a bit too optimistic. In any case, that spread between my fair value and the deal price is what a former boss of mine would describe as "close enough for jazz", so I am not going to worry about it too much. Moreover, I have also felt that JNJ needed to get more aggressive in finding new growth opportunities, so this is a deal and a price than I can live with pretty happily.
I would still recommend investors buy shares of JNJ. I also wonder if MEND shares are not worth a shot as an arbitrage play - so long as you can get the shares at a price that will still leave you with a profit after commissions, it might be worth the gamble to see if another bidder appears.
Disclosure - I own shares of JNJ.
Sunday, July 11, 2010
Apache Might Profit From BP's Troubles
I hope this does not sound too obnoxious, but it is gratifying to see your predictions working out. In this case, I remember saying a few weeks ago that I thought BP (NYSE: BP) would look to asset sales to generate some additional cash. I have also mentioned, from time to time, that Apache (NYSE: APA) could come out of this whole situation as a winner -- not only because of that company's greater conservatism, but because of its historical skill at buying good assets on the cheap.
Well, apparently there might be something to this. Stories are spreading now that Apache and BP are talking about a potential deal worth up to $12 billion, a deal that would include some (maybe all) of BP's Alaska assets. BP's Prudhoe Bay is considered to be a declining field, but Apache has shown a lot of skill in the past at squeezing more oil out of a field than almost anybody else. So what is certainly a declining asset for BP may look a little better in the hands of Apache.
If these rumors are true (and the dollar figure is accurate), I figure that Apache is probably looking at acquiring something like 400-500M barrels of oil reserves.
Specifics matter, of course, but I feel confident that Apache will come out on the winning end of just about any deal. Apache has always been a good buyer and BP is what I think we could all call "a motivated seller". Add in to that analysis the facts that it is likely to get more expensive to do business in US oil fields and the declining nature of those Alaskan assets and there might not be too many competing bidders stepping up -- another positive for Apache.
There is one other rumor apparently going around now, too - that ExxonMobil (NYSE: XOM) may be preparing to make a bid for BP. Would this deal make sense? For Exxon, absolutely. Exxon is cursed with being huge - it is all but impossible that they can grow enough through the drillbit to matter, and there just are not too many potential acquisitions that would make a dent either (the recent deal with XTO not withstanding). So, for Exxon is its a pretty simple choice -- keep finding new ways to grow assets and production, or accept its destiny to ultimately just become a default trust company that sends checks to its owners every quarter.
On top of all that, BP is certainly a lot cheaper today than it was a year ago. And obviously whatever problems revolve around BP right now, the oil they own does not carry those problems with it - in other words, a barrel of oil held by BP may only be worth "X" today, but transfer it over to Exxon and it could suddenly be worth "X times 1.4" or somesuch.
While this is all just a rumor, it does not immediately sound like a great plan to me for BP. Desperate sellers do not get fair market value. So if BP *has* to sell something to raise cash, and has to accept below-market value because of desperation, it makes a great deal more sense to me to sell a percentage of assets at a poor price than sell the entire company at a poor price.
Time will tell how this all works out ... at this point, though, I think it is pretty likely that Apache and BP ultimately do a deal ... and I think it is very likely that it will end up being yet another savvy deal for Apache.
Well, apparently there might be something to this. Stories are spreading now that Apache and BP are talking about a potential deal worth up to $12 billion, a deal that would include some (maybe all) of BP's Alaska assets. BP's Prudhoe Bay is considered to be a declining field, but Apache has shown a lot of skill in the past at squeezing more oil out of a field than almost anybody else. So what is certainly a declining asset for BP may look a little better in the hands of Apache.
If these rumors are true (and the dollar figure is accurate), I figure that Apache is probably looking at acquiring something like 400-500M barrels of oil reserves.
Specifics matter, of course, but I feel confident that Apache will come out on the winning end of just about any deal. Apache has always been a good buyer and BP is what I think we could all call "a motivated seller". Add in to that analysis the facts that it is likely to get more expensive to do business in US oil fields and the declining nature of those Alaskan assets and there might not be too many competing bidders stepping up -- another positive for Apache.
There is one other rumor apparently going around now, too - that ExxonMobil (NYSE: XOM) may be preparing to make a bid for BP. Would this deal make sense? For Exxon, absolutely. Exxon is cursed with being huge - it is all but impossible that they can grow enough through the drillbit to matter, and there just are not too many potential acquisitions that would make a dent either (the recent deal with XTO not withstanding). So, for Exxon is its a pretty simple choice -- keep finding new ways to grow assets and production, or accept its destiny to ultimately just become a default trust company that sends checks to its owners every quarter.
On top of all that, BP is certainly a lot cheaper today than it was a year ago. And obviously whatever problems revolve around BP right now, the oil they own does not carry those problems with it - in other words, a barrel of oil held by BP may only be worth "X" today, but transfer it over to Exxon and it could suddenly be worth "X times 1.4" or somesuch.
While this is all just a rumor, it does not immediately sound like a great plan to me for BP. Desperate sellers do not get fair market value. So if BP *has* to sell something to raise cash, and has to accept below-market value because of desperation, it makes a great deal more sense to me to sell a percentage of assets at a poor price than sell the entire company at a poor price.
Time will tell how this all works out ... at this point, though, I think it is pretty likely that Apache and BP ultimately do a deal ... and I think it is very likely that it will end up being yet another savvy deal for Apache.
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