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Another day, another takeover, with a handsome 35% share price jump to boot. And today its the turn of specialty healthcare/biotech company BTG which could be snapped up by Boston Scientific after it offered 840p cash per share (36% premium).
BTG operates via 3 segments; interventional medicine (oncology (cancer), vascular, pulmonology), pharmacuticals and licensing, and has been formed over several decades via a mish-mash of deals. Today’s offer merely takes the shares back to the ceiling of a four-year 500-835p range, which also represents their best since August 2001 (I hadn’t even started working in the City).
Why the big share price jump? Because the shares are adjusting to the cash offer. Why the big premium? Because that tends to be what you have to offer in order to take control (“control premium”), given you are asking shareholders to give up any future capital appreciation (share price growth) and/or dividends. In this case the latter has been unpaid since 1998, although some optimistic brokers were factoring in the return of a token payment within 2 years.
With the shares sat in the middle of the aforementioned 500-835p range yesterday (albeit having rallied from the floor, boosted by last Tuesday’s first half results) Boston Scientific perhaps estimated that giving shareholders the chance to cash out at Jan 2015 highs (all-time highs for everyone except those holding on since 1998) would suffice to convince.
Our M&A records involving UK Index names 2011-18 suggest an average 30% premium for deals so this is perhaps slightly more than usual, but the psychological level on the chart is highly likely to have played a part in the decision too.
So why are the shares not trading at 840p? Because the deal still has to be approved by shareholders. The BTG board intends to recommend the offer unanimously, but you never know. 33% of shareholders may have given their approval, but the rest must votes the same way.
And those other shareholders may wonder whether it’s worth holding out for more. Especially as the £3.3bn valuation means Boston paying 5.3x 2017/18 revenues, 21.7x adjusted pre-tax profits and 30x free-cash flow, multiples which suggest the predator sees healthy upside potential from the combination.
Hence the 1.6% difference between share price and offer, reflecting the chance that the deal goes sour and offering at least some reward for those prepared to take the risk, buying in after the news, aiming to profit from this latest opportunity for some Merger & Acquisition/risk arbitrage.
Mike van Dulken, Head of Research, 20 Nov 218
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Prepared by Michael van Dulken, Head of ResearchComments are closed.