Barron's has a good summary of the Cephalon (CEPH) buyout announcement from yesterday. What's interesting and has kept us in the stock is that Valeant Pharma (VRX) traded up 12.8% today. This is unheard of for the bidder in a hostile deal to increase especially that dramatically. Apparently the market thinks the deal is very cheap with the analyst from Hapoalim Securities speculating on a significant increase in the bid of up to $86.
Several of the analysts increased their targets on VRX suggesting that the cost savings and ability to borrow low cost debt makes this deal very appealing. The $300M in savings would be incredible for a $5.7B deal and essentially covers all of the interest payments.
All of this points to a likely bump in the bid assuming the BOD at CEPH doesn't out right block the deal. An offer potentially in the $80s would likely be deemed attractive. It will keep us around for a while. Eventually though the potential upside might be limited and risk greatly enhance of a downside plunge if the bid isn't accepted. Opportunities always exist elsewhere.
The Cross Current Research analyst on the other hand was very negative on the deal. Alex suggests that CEPH could actually turn to losing money after Provigil and Treanda go generic. Naturally he makes some 'interesting' statements about if all the R&D projects move forward that the costs would become serious. Naturally though why would a company undertake such a scenario unless the potential is significant?
Sensational analysis like this isn't helpful. Even the VRX CEO mentioned finding partners which is likely what CEPH would do as a stand alone. Ultimately its only a problem if they end up with too many good drugs a keen to having too many good running backs that all can't start. Its a good problem to have. Too many good assets won't turn into a problem.
Next week should be interesting.