Sepracor: A Thought Of A Higher Price… (SEPR, CBST, ONXX, GERN, VNDA, REGN, SGEN, ALNY)

September 9, 2009 · Filed Under M&A 

It is common that when mergers are announced that some shareholders are either unsatisfied or want more.  Sepracor Inc. (NASDAQ: SEPR) and its proposed $2.6 billion sale to Dainippon Sumitomo Pharma Co. might not be enough to satisfy everyone involved in the shareholder side of the deal.  That is the case if you read a Bloomberg report from Tuesday night and this could be the first of many such suits.

It appears that the allegations are that the terms of the merger are detrimental to shareholders because of a break-up fee and shopping provisions.  This is an effort either to block the merger or to secure a higher price and better terms.  So here is how the $23.00 stacks up… It was a 27.6% premium to the September 1 price, but was a 48% premium to the 6-month average.

This deal does make-whole anyone who bought shares over the last year.  But it comes with a huge hit for many investors who have been in it for the long-term.  From the end of 2004 to mid-2007 this was generally a $40 to $60 stock.  Then it was a $30 stock and the stock was in the low $20′s to $30 for most of the period from mid-2007 to mid-2008.

If you look at the deal on a valuation basis, it seems very cheap.  The Thomson Reuters figures for 2010 are $2.91 EPS and $1.26 billion in revenues for 2009 and $2.99 EPS and $1.31 billion in revenues for 2010.  In short, The company is selling for less than 8-times a blended earnings estimate and just over 2-times revenues for a blended time horizon.

Any time a merger is seemingly based upon a 52-week high, it is hard to feel too sorry for investors.  At least until you start looking at the multiple of earnings being so low.  We screened recently for all of the low P/E stocks in drug and biotech and there are still many other low P/E multiples in there.

We also are putting together another piece right now containing the following stocks as merger candidate discussions:

  • Cubist Pharmaceuticals Inc. (NASDAQ: CBST)
  • Onyx Pharmaceuticals Inc. (NASDAQ:ONXX)
  • Geron Corporation (NASDAQ: GERN)
  • Vanda Pharmaceuticals, Inc. (NASDAQ: VNDA)
  • Regeneron (NASDAQ: REGN)
  • Seattle Genetics Inc. (NASDAQ: SGEN)
  • Alnylam (NASDAQ: ALNY)



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