Is Allergan Next in the Takeover Line? (AGN, GSK)
Earlier this morning we caught a volume alert on Allergan Inc. (NYSE: AGN) over at Volume Spike Investor. It turns out that Allergan is being passed around as the next of the big takeovers in the medical and biohealth space. GlaxoSmithkline (NYSE: GSK) is the rumored suitor. Is it fair to make any Blue Horseshoe references?
The waves and waves of biotech and drug mergers is putting somewhere around $100 billion in new money for investors who want to own biotech stocks, drug stocks, and just about anything else tied to medicine. Allergan is a very different company. It has Botox, Lap-Band, breast implants, eyelash enhancements, and more.
So what would it be worth if a takeover comes about? The most simple method to generate a price range is using forward Price/Earnings multiples to make determinations, and then it boils down to what sort of earnings multiple you are willing to marry in the space. If you use a year forward P/E of 15 then you get a value of $40.50 for this year or if you use a forward P/E of 20 then you end up at $54.20 for this year. But if you use 2010 estimates from First Call for the year that an acquirer could say the deal could become accretive to earnings, then a forward P/E ratio of 15 would generate an implied forward price of $45.60 and a forward P/E ratio of 20 then you get an implied forward price of $60.80.
After today’s run-up, Allergan is worth more than $14.5 billion in market capitalization. It carries over $1.1 billion in cash and carries over $1.6 billion in direct long-term debt.
Because Allergan has much reliant upon beauty and elective surgeries or procedures, the company is a much more economically sensitive stock than many biohealth peers. In today’s environment of being extremely cautious it seems a stretch to say $60.00 is attainable. But if a recovery does come sooner rather than later, then there could be all sorts of upside to those earnings expectations as soon as more voluntary procedures start coming again.
Allergan’s 52-week trading range is $28.95 to $61.72. Stay tuned.
Jon C. Ogg
March 24, 2009 (12:00 PM EST)
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