Friday, April 26, 2013

Valeant Pharmaceuticals in Talks to Buy Actavis

At 7:02 pm, The Wall St. Journal announced that Valeant Pharmaceuticals (VRX) was currently in talks to buy Actavis (ACT) in a +$13 Billion, all stock deal, (Link found here) sending shares up 2-3% in after hours trading.

Due to a string of favorable patent litigation settlements and strong earnings, ACT has increased over 17% YTD (and 16.04% since our buy-in) to $100.94 at market close today (an all time high for the firm.) Because of this aggressive growth, ACT's market cap has steadily increased to its current $12.9 Billion standing. The current offer of $13 Billion, or $101.7 per share would be a premium of .75. UASBIG's price target puts Actavis at $120 with the most recent street consensus ranging from $105 to $120.

Considering the small premium and bullish consensus, VRX will likely have to offer a significantly larger premium or else continue their search for acquisitions else where. This seems reflected in the article above, as talks are currently being described as "Fragile" and ACT management is said to have insisted Valeant utilize both stock and debt (in a likely bid to increase the premium). Taking a brief look over Valeant's 10-K, the firm has 11 Billion in total debt on a book worth $17.9 Billion. It is probably unlikely that Valeant will want to issue more debt to acquire a company that itself, is fresh out of a merger. This seems to leave them with few options, and implies that this deal will likely fall through.

 Because of this and many other recent events, ACT's model will be revised in the next few days in order to represent the most up-to-date information.

Update: Reuters has announced that the merger talks have been put on hold indefinitely.
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