Takeover offer for this drug maker sends shares soaring—time to cash out for a nice profit!
Sell: Perrigo (PRGO)
from BI Research
Updated from Investment Digest, 746, July 10, 2013
Yesterday Perrigo (PRGO) disclosed it received a takeover offer from Mylan Labs received on 4/6 for $205 a share in cash and Mylan stock, valued at $29 billion. This is a 25% premium to the closing price on 4/3 and a 29% premium to the average price over the past 60 days. The shares shot up 30%.
But the most amazing part is that Mylan also soared $9 to $68.38 on word of the proposed deal! THAT is almost unheard of! The acquirer almost always takes a hit even if, as Mylan indicated in this case, the deal was expected to be accretive.
I am fine with this offer, but it seemed to me to be even less certainly worded than other offer press releases… “and there can be no certainty that an offer will be made, even if the due diligence pre-condition is satisfied or waived.” And Perrigo in its release called it an “unsolicited, indicative proposal from Mylan regarding a possible offer for the Company.” (My italics) For example, no ratio of stock vs. cash was provided. Perrigo said it would discuss it with the Board and make an announcement when appropriate.
Mylan said it has been discussing the possibility with the Company off and on in recent years. The CEO would become a Co-Chairman of Mylan. Both releases said it was subject to due diligence with no assurance it would result in an actual offer. The shares actually opened near $215, almost like they had the wrong number or briefly expected a competing offer, which is always possible. The shares bounced around all day and I think we could get $198 for it intraday at some point today or soon and would suggest you take that. With the uncertainty that surrounds these deals and how long a big deal like this takes, which could leave the shares in limbo for a long period just to close the remaining 3.5% gap, let’s Sell the remaining 75% of this position at $198. (You can of course just bail here if you prefer—your call). Note that 25% of this position was sold at $155 on 7/14/14. The shares were originally purchased at $103.50 back in December 2012, so this represents a 91% gain on the remaining shares.
Tom Bishop, BI Research, www.biresearch.com, April 9, 2015