Allergan details five areas for strategic review; downplays Shire consideration - MergerMarket
01 MAY 2018
Allergan [NYSE:AGN], the Ireland-based pharmaceutical company, is looking at five options during its strategic evaluation, CEO Brenton Saunders said Monday. He also commented on Shire [LON:SHP].
During his prepared remarks on the 1Q18 earnings call, Saunders noted that Allergan announced in March its decision to review strategic actions to unlock shareholder value. He said the company is deep into the process and has engaged multiple financial advisors to assist. The CEO explained that while anything is possible, the company’s options fall into five broad categories: an aggressive share buyback; divestitures; splitting the company; acquisitions or mergers; and operating in its current configuration.
“While we like our business as it exists today, we do believe there are strategic and financial merits for a more focused Allergan and are currently evaluating options that would enable us to concentrate more on key therapeutic areas where we have the strongest competitive advantage,” Saunders said. “Therefore, if economically prudent, we would look to divest certain assets.”
He said splitting the company would take the longest time to complete and be the most disruptive of all the options, but it is still being considered.
Regarding M&A, the CEO said the key is to find the right strategic fit and financial rationale.
“Given the current environment, a large combination or merger is an unlikely outcome at this time,” he said. “However, small bolt-on transactions including product and pipeline acquisitions that could strengthen our key areas of therapeutic focus are on the table, but once again the mandate is right strategy, right asset, right price.”
In terms of buybacks, Saunders said the company’s stock disconnect remains despite a robust buyback program and it does not believe this would be a primary conclusion to the review.
“While the board continues to evaluate the options, my preliminary view is that a fundamental shift in the overall business strategy is not necessary,” the CEO said. “Running the company in large part as it exists today is not only an option, but also the baseline against which all options need to be considered.”
In the Q&A session, J.P. Morgan's Chris Schott asked Saunders to elaborate on the pros and cons of potential divestitures versus a split of the company. The CEO reiterated that all options are on the table, with divestitures needing to make strategic and financial sense.
He stressed that Allergan would not do a garage sale of important assets, noting that the company does not consider any of its current portfolio to be a distraction to management.
Earlier on the call, Citi analyst Liav Abraham asked about the timeline for the completion of the strategic review. Saunders said it is an ongoing process in which the board is deeply involved. He explained that Allergan continuously looks for ways to simplify the company, noting the previous sales of its respiratory, contract manufacturing and generics businesses as examples.
Asked by Cowen analyst Ken Cacciatore about the feedback Allergan had received from shareholders regarding the strategic review, Sanders said there were some shareholders that supported each of the five options.
The CEO addressed Allergan’s falling share price at March's Barclay’s Global Healthcare Conference. At that time, Saunders said the company was “undertaking a full, fresh look” at all available options and would do this with a sense of urgency. At the March conference, the CEO noted that current financial performance was progressing according to plan, but there appeared to be an extreme disconnect between fundamentals and current valuation.
A published report in early April said Allergan had held talks with advisors regarding the strategic options for its women’s health unit.
Shire evaluation
Separately on Monday’s call, UBS analyst Marc Goodman noted that the CEO said no big deals are under consideration and asked how talk of Allergan’s potential interest in Shire relates to this decision. Saunders reiterated that large transformational buys are not a top priority, adding the caveat that it could not rule anything out in the dynamic healthcare environment and the company would maintain flexibility for opportunities that present strong strategic and financial rationale.
“Because Takeda [TYO:4502] put Shire in play, we felt we had an obligation to at least do a cursory review and look to see if there was a probability that we could create value for shareholders,” the CEO explained. “We did that. It was leaked, as you saw in the press, and we were forced within minutes to make a presets disclosure as required by the UK Takeover Panel. But to be clear, we work very quickly with the takeover panel in the UK to clarify that and we are not going to make an offer for Shire.”
He added that Allergan’s business development teams were always active and it had made a cursory review of Shire as part of its standard operating practice to look at every company in play, regardless of whether there was a possibility of pursuing a deal or not.
“We have to look at other things to make us smarter about the things we want to buy and that’s what happened here,” the CEO said.
On 19 April, a newswire report said Allergan was in talks to buy Shire, emerging as a rival to Japan's Takeda. Later that day, Allergan confirmed it was in the early stages of considering a possible offer for Shire. Hours later, Allergan announced that it did not intend to make an offer for Shire, stating it was making the second statement in order to comply with the requirements of the UK Takeover Code.
Bolt-ons
Asked on this week's earnings call about which verticals Allergan was interested in regarding bolt-on buys, CEO Saunders said the company is committed to four main areas: medical aesthetics, eye care, central nervous system [CNS] and gastrointestinal [GI]. He said it also has a strong view of its women’s health and anti-infectives businesses, though they are less strategically important.
“In terms of bolt-ons, I think, you’ll see us generally focusing like we have in the past on the areas where we follow our strategy, which is to create market leadership positions in each of our therapeutic areas,” the CEO said, noting its LifeCell and ZELTIQ deals in the medical aesthetics space as examples. “If we could find things in eye care that made both strategic and financial sense, that would be a hot area for us. In GI and CNS, equally so. So those are the four we tend to focus on.”
Allergan is focused on developing, manufacturing and commercializing branded pharmaceutical, device, biologic, surgical and regenerative medicine products. Its brands are used for the central nervous system, eye care, medical aesthetics and dermatology, gastroenterology, women's health, urology and anti-infective therapeutic categories.
In February 2017, Allergan announced it had agreed to buy ZELTIQ, a Pleasanton, California-based medical technology company, for USD 2.475bn.
In late 2016, Allergan said it had entered an agreement with Texas-based Acelity to buy regenerative medicine company LifeCell of Bridgewater, New Jersey, for USD 2.9bn in cash.
Allergan used Moelis for ZELTIQ, with Barclays and Guggenheim Partners advising on LifeCell. J.P. Morgan, BofAML and Greenhill were used on prior deals.
Debevoise & Plimpton, Weil Gotshal & Manges and Covington & Burling have been used on several recent acquisitions, according to the Mergermarket M&A database.
Allergan has a market capitalization of USD 56bn.
Seagate Tech beats by $0.13, beats on revs; Board approves $0.63 per share dividend.
--> -5.5% pre open 160k shares traded
- Reports Q3 (Mar) earnings of $1.46 per share, excluding non-recurring items, $0.13 better than the Capital IQ Consensus of $1.33; revenues rose 4.8% year/year to $2.8 bln vs the $2.75 bln Capital IQ Consensus.
- Reported gross margin of 30.8%, net income of $424 million
- Board has approved a quarterly cash dividend of $0.63 per share, which will be payable on July 5, 2018 to shareholders of record as of the close of business on June 20, 2018.
CFO: we executed well this quarter against backdrop of strong market demand - earnings call - Expects continued opportunities for our mass storage portfolio
Bosch’s Splitting Fares seeks bolt-ons, CEO says
01 MAY 2018
Splitting Fares (SPLT), a Detroit-based carpooling application provider that was acquired in February by Germany-based Robert Bosch, is in talks with potential targets that offer complementary technology, said CEO Anya Babbitt.
The companies in question have raised “very little capital and believe that consolidation of other carpooling apps is the only way to succeed,” said Babbitt, 34, who co-founded SPLT in 2014 with Chief Technology Officer Yale Zhang.
SPLT focuses on employee carpooling for corporations, as well as group carpooling for colleges and hospitals. Its services are meant to facilitate commutes in cities that suffer from congestion, particularly those with limited public transit, said Babbitt. The service also cuts parking costs down significantly for corporations, and is unique for not charging rider-driver fees, she added.
Ideal targets would be either based in Latin America or focused on growing rideshare programs there, said Babbitt. In the US, it is looking for non-emergency medical transport technology companies that have experience working with the Department of Transportation and other government groups.
Once focused exclusively on car-sharing, the SPLT program now allows for reserving seats on buses. “People were afraid to wait for buses to arrive, but now we can notify passengers exactly when the bus is coming,” Babbitt explained. As such, it could pursue microtransit companies focused on optimizing bus routes, she added.
Brazil, Singapore, Spain and Italy are examples of countries that SPLT wants to penetrate, potentially through M&A, as they are particularly congested and in need of ridesharing services, said Babbitt. It also wants to bulk up its UK and Germany presence, via deals or organically, she added. SPLT, with 25 employees, also has operations in Atlanta, Austin, Texas; Chicago, Los Angeles, Mexico City, Monterrey, Mexico; New York, Portland, Oregon; and San Francisco.
Conversations with prospective targets are in preliminary stages. Its law firm is Jaffe Raitt Heuer & Weiss, she said.
Because SPLT is 100% owned by Bosch, the parent can fund purchases of both transformative and tuck-in targets, said the CEO. Terms of the deal were undisclosed. But SPLT, which does not disclose its revenue, will likely go after smaller businesses, she maintained.
Bosch began using SPLT’s rideshare options for its Mexican employees in 2016. Talks about a potential acquisition got serious in 2017, Babbitt said. Prior to its acquisition, the company had raised USD 1.5m via several seed funding rounds.
“We had other strategic groups throughout the year interested in us, earlier than Bosch, in the Midwest and California,” she added. “But none of those would have let us preserve our team and operate independently.”
One of SPLT’s more memorable milestones occurred after BMW [ETR:BMW] began offering employees company cars, which rapidly increased rideshare requests, she recalled.
It has an exclusive partnership with Lyft, offering emergency rides home if a customer’s carpool falls through. It also provides non-emergency carpool services for the elderly, allowing hospitals to schedule rides for patients and increasing the percentage of on-time arrivals, said Babbitt.
“We want the experience outside the hospital, like waiting for pickups, to be just as excellent as the hospital treatment, since hospitals get graded on outside as well as inside services,” she noted.
Other key customers include Magna International [TSE:MG], Honda [TYO:7267] and DTE Energy [NYSE:DTE].
Asked if SPLT was targeting small regions that also have limited public transit, Babbitt replied, “We have clients in Ohio, South Carolina and North Carolina, where there’s plenty of cornfields and long stretches of highway but no buses in sight.”
“I won’t name the client,” she added, “but there was one guy walking an hour and a half to work every day barefoot and now he has a ride. Some people are meeting and getting married because of our platform!”
"It's A Historic Day": The US Economic Expansion Is Now The Second Longest On Record
In addition to bringing May Day which, as Deutsche Bank's Jim Reid describes as "the day people danced around a maypole in funny outfits and generally partake in outdoor celebratory activities but if yesterday was anything to go by in London anyone going outside was likely to need to dance just to prevent frost bite", the start of the new month marks a far more "historic" occasion: as we previewed three weeks ago, with the ticking over of the monthly calendar, this US economic expansion now becomes the outright second longest in history with data going back over 164 years and 34 business cycles.
According to Deutsche Bank's calculations, at 107 months the current expansion just nudged ahead of the long 1960s expansion, and will beat the 1990s expansion for the title of longest expansion in history if it extends past July next year.
What is notable is that as discussed before, the last four expansions (since the early 1980s) have all been long ones and are all in the top 6 longest of all time. Why have they been so long? According to Reid it’s largely due to demographics and globalization colliding.
The global labour force has naturally surged since 1980 with China deciding to integrate itself into the global economy at almost the same point. China thus dumped an additional billion of low paid labour on the world. This has helped structurally depress global wages for three and a half decades and meant that policy hasn’t needed to be tightened as early in the last four cycles as through most of history.
While these factors have helped prolong these business cycles, the risk is that we’re just past peak global labor now and therefore subsequent cycles will see wage pressures, clashing demographics, labor shortages, rising yields and general market instability. Which is why Deutsche closes on a pessimistic note: "So the days of super long business cycles may be over so enjoy this one while it lasts."
Or maybe not: as we also showed last month, according to the latest CBO forecast, the US is now expected to not have a recession any time until Dec. 31, 2028, which would imply that the CBO expects the current expansion to last no less than 234 months (since June 30, 2009), which would make it nearly 20 years long...
... and double the longest period without economic contraction in history, effectively unleashing an era of global peace and prosperity. Good luck with that.
Hasbro to acquire Saban Properties' Power Rangers and several other entertainment brands for $522 mln
The co and Saban Properties LLC announced that the companies have signed a definitive agreement for Hasbro to purchase Saban's Power Rangers and several other entertainment brands, including My Pet Monster, Popples, Julius Jr., Luna Petunia, Treehouse Detectives and others, in a combination of cash and stock valued at $522 million.
- Hasbro has previously paid Saban Brands $22.25 million pursuant to the Power Rangers master toy license agreement, announced by the parties in February of 2018, that was scheduled to begin in 2019. Those amounts are being credited against the purchase price. Under the terms of the purchase agreement, Hasbro will pay an additional $229.75 million in cash and will issue $270 million worth of Hasbro common stock for the Power Rangers brand and several other entertainment brands.
- The transaction, including intangible amortization expense, is not expected to have a material impact on Hasbro's 2018 results of operations.
- The first set of products from Hasbro will be available in spring 2019.
MergerMArket
Beni Stabili/FDR merger could weaken exposure to key real estate holdings - top 5 investor
01 MAY 2018
Beni Stabili’s [BIT:BNS] proposed merger with its 52.4% shareholder Fonciere des Regions [EPA:FDR] could decrease investors’ exposure to the prime Milan real estate area, making the combined entity a less compelling proposition than Beni Stabili on its own, according to a top five shareholder in Beni Stabili.
The Milan area, the focus of Beni Stabili’s business, and a growing investment area, is presumably what has driven investors to the company, the shareholder said. But the merger is expected to dilute the portion of Milan holdings within FDR’s larger set of assets, he argued.
Beni Stabili’s EUR 4bn portfolio largely consists of offices based in Milan and surrounding areas, according to the company’s website. Meanwhile, FDR’s assets breakdown is: 30% French offices, 23% German residential properties, 23% European hotels and 19% offices in Italy, according to its website.
Compounding the relative lack of attractiveness of the deal from a shareholder perspective is the fact that the offer values BNS at a discount of 10% to its 2017 EPRA NAV of EUR 0.836/share, the investor argued.
Under the deal terms proposed by FDR, Beni Stabili investors will receive 8.5 FDR ordinary shares for every 1,000 ordinary shares of Beni Stabili they own.
FDR said the merger will enhance its position as a leading pan-European integrated real estate player, according to a company press release.
The transaction is subject to approval from Beni Stabili’s independent board at the end of May, as well as by the two companies’ EGMs in September. Beni Stabili’s related parties committee will issue an opinion, as required by Italian law.
But the only potential hurdle the tie-up is likely to face could be the approval of Beni Stabili’s related parties committee, the shareholder said. Investors who do not want to exchange their Beni Stabili shares could wait until May in the hope that the body takes into account their concerns over the possibility of being diluted into FDR.
The deal is indeed likely to be approved by shareholders, mainly due to Beni Stabili’s existing investor base, a person familiar with FDR thought.
In addition to FDR, other Beni Stabili’s shareholders include Predica SA with 5.7%, Anima SGR with 5% and Leonardo Del Vecchio with 2.6%.
Shareholders who do not vote in favour of the merger are entitled to a cash withdrawal right in accordance with applicable law in Italy.
FDR is controlled by Delfin, Leonardo Del Vecchio’s holding company, with a 28.4% stake.
Fonciere des Regions and Beni Stabili were unavailable for comment.