If there ever was a perfect storm for large pharmaceutical and big-cap biotech companies to make acquisitions to enhance growth it is now. The sheer size and pace of the current deals is staggering, and this year looks very likely to top 2014, when there were 45 transactions that came in at $114 billion. We are not even half way through the year, and already there have been 16 transactions, which came in at $99 billion.
A new report from Jefferies points out that all the ducks are lined up for acquirers: super-low interest rates, an abundance of cash to do all-cash deals and a race among companies to secure the lowest tax rate via inversion deals. While the new Treasury rules are designed to discourage such deals, the Jefferies team sees more to come. With many deals immediately accretive, there are surely more buyouts on the way, and maybe soon.
We screened the Jefferies list of specialty pharmaceutical companies that had the largest market cap and were rated Buy at the firm. Obviously, they would be the most expensive, but they also could perhaps bring the most to the table for a buyer.
It turns out that Valeant Pharmaceuticals International Inc. (NYSE: VRX), Shire PLC (NASDAQ: SHPG) and Perrigo Co. PLC (NYSE: PRGO) were the focal points of the report. We have shown each of the “why” rationales on these. Also included are partner companies and price target information from Jefferies.
While none of these deals can be assured by Jefferies, nor by anyone else, 24/7 Wall St. would point out that many mergers and acquisitions in biotech and specialty pharmaceutical companies occur at prices that are far above one-year price targets. The reason is simple: the selling company’s board of directors has to maximize shareholder value, and a buyout today has to almost always do more than just discount the news and upside of just the next year that the company would have had on its own.
Jefferies views this stock as the ultimate tax inversion deal, with its low 5% tax rate. Valeant Pharmaceuticals International Inc. (NYSE: VRX) develops, manufactures and markets pharmaceuticals, over-the-counter products and medical devices worldwide. It has an extensive list of products that treat everything from severe acne to Wellbutrin XL for major depressive disorder in adults; Jublia for onychomycosis of the toenails; Xenazine for chorea; Targretin for cutaneous T-cell lymphoma; Arestin, a subgingival sustained-release antibiotic; and Provenge for the treatment of prostate cancer.
With attractive cash pay, strong ophthalmic and dermatological businesses, and a growing footprint in emerging markets, this is a very strong candidate for a deal. We noted recently that insiders are also buying the stock.
The Jefferies price target for the stock is $246. The Thomson/First Call consensus target was unavailable. Shares closed Friday at $238.77.