Genzyme Option’s Implied Buyout Price (GENZ, SNY, JNJ, GSK)
Genzyme Corporation (NASDAQ: GENZ) may have managed to save itself without really saving itself. That is what happens when buyout interest emerges in a struggling situation, particularly in the world biotechnology. With Sanofi-Aventis (NYSE: SNY) first having interest per reports Friday, the stock rose over 15% to $62.52. After the weekend, we have shares up 6.7% at $66.76 on word that Johnson & Johnson (NYSE: JNJ), GlaxoSmithKline plc (NYSE: GSK), or potentially other suitors may be interested.
What we wanted to check on was the pricing of near-month stock options to try to establish an implied buyout price. Genzyme stock options are showing right at $2.00 for the AUG-2010 $70 Calls. The AUG-2010 $65 Puts are at $2.55.
Using current prices alone does not give a 100% accurate read on any implied buyout price indications. Quite simply, the snapshot of today does not always reflect the trading book of an options market maker. It does give theoretical pricing and probability.
You also have to consider that we have already now seen a large run-up and the buyout interest that had been indicated could have easily been based upon where shares were… in the low-to-mid-$50′s. Corporations rarely care about appeasing speculators who invest in and around the potentiality of a merger, but they do have to keep in mind that securing a merger often requires more than just appeasing shareholders who are happy to get a boost from low levels.
After crunching numbers based on options prices today, it seems that $70.00 is the implied theoretical buyout price. Extra premium on top of this would garner the hope that GSK or J&J would try to jump in with a rival bid or a higher bid.
Again, these prices are merely based on snapshots in time. Options are merely one component of what is a convoluted situation. Sometimes these are dead-on, and sometimes they are off by a mile.
As far as this comparison, the Call options are far more active and have a far larger open interest than the Put options. Generally that is a sign that speculation is for upside rather than downside. Of the speculative Put strikes in August, we have only seen a bit more than 5,000 contracts trade today versus a prior open interest of 5,877 contracts. Today’s Calls have seen more than 12,000 contracts trade versus a prior open interest of more than 27,000 contracts.
What Genzyme ultimately fetches, if it garners a deal, points to a high implied bid of around $70.00 by our take. The value of anything is what someone is willing to pay for it. That could be far more or far less. Genzyme’s average share price for last week before the reported bid rumors was close to $53.00.
JON C. OGG
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