In Part 2 of a 2-part series, BNL Finance looks at five of 10 companies that are likely to be acquired at some point before 2017 ends. We will also tell you what company is the most likely acquirer.
That said, we are not tossing out random ideas. This will act as our first official prediction sheet that will be monitored throughout the next year. Thus, the picks are very thought out. As noted in Part 1, I have predicted acquisitions in Rite Aid, Santarus, Questcor Pharmaceuticals, Sprint, Salix Pharmaceuticals, Pharmacyclics, Alcatel-Lucent, and King Digital. I am looking to grow that list in 2017.
Albeit, let’s explore why Valeant Pharmaceuticals Intl Inc (NYSE:VRX), Gilead Sciences, Inc. (NASDAQ:GILD), Splunk Inc (NASDAQ:SPLK), Whole Foods Markets (NASDAQ:WFM), and American Express Company (NYSE:AXP), or AmEx, all have a great shot to join the list and be acquired sometime in 2017.
2017 M&A predictions Part 1 (read here)
Acquisition Prediction: Allergan & Takeda pick VRX apart
If not for Bill Ackman’s mounting losses, Valeant Pharmaceuticals would be the prime M&A target of 2017. This is a company that acquired legitimate assets with $9.5 billion in revenue packed into a sub-$5 billion market capitalization. For reference, 3x sales in biotech and big pharma is considered cheap.
Yes, VRX has $30 billion in debt and unknown legal exposure, but with well over $1 billion in annual free cash flow moving forward and $650 million in cash, VRX can afford to pay-down debt over time. The problem is that VRX stock isn’t going anywhere until that debt becomes less of a risk, which is where Allergan and Takeda come in.
VRX was reportedly talking to Takeda back in November for its Salix drug unit, according to WSJ. Back when VRX acquired Bausch & Lomb, the eye care specialist, Allergan showed interest and reportedly bid. I believe that interest still exists, especially since Allergan could acquire those assets for dimes on the dollar that VRX spent.
Yes, there still seems to be some delusion on behalf of Ackman & Co for how much Valeant’s assets are worth. However, it won’t take long for them to realize you can’t sell 20% of total revenue for twice Valeant’s entire market capitalization. Furthermore, Ackman & Co will soon realize the need.
Despite having to take a loss, the cash gained will have a profound effect on VRX stock. Thus, Allergan & Takeda acquire VRX assets in a winning transaction for all parties.