For the past 10 months, Relational Investors LLC has been pushing Par Pharmaceutical Cos. to sell itself. Now that Par has agreed to be taken over by TPG Capital for $1.9 billion, the question is whether Relational will back the deal.
TPG and Par Pharmaceutical announced Monday a deal at $50 per share in cash, a 37% premium over last week's market price for Par, which has a generic drug manufacturing and marketing business and a branded drug business. The generic drug operations of Par represent about 90% of the business.
The merger agreement for the TPG deal has not yet been filed with the Securities and Exchange Commission, and the parties did not host a conference call announcing the transaction. The deal includes a go-shop period that ends Aug. 24. The breakup fee related to the go-shop has not been disclosed.
Par Pharmaceutical shares traded as high as $52.33 on the deal announcement but settled back to trade roughly on a par with their value in TPG buyout, which without the disruption of a spoiler bid should close in November.
Relational has been a 13D filer on Par Pharmaceuticals since last November, seeking refinements to the operational structure of the company and the exploration of a sale. Relational, which has a successful track record as an activist value investor and holds nearly 10% of Par Pharmaceutical, questioned the company's ability to compete given its relative scale and product scope. Relational, however, said in its SEC filings that it expected the premium a strategic buyer could offer based on synergies of scale and benefits from low-cost manufacturing and distribution could exceed what management might achieve organically.
Several analysts agree and think that Par Pharmaceutical could realize a better deal during the go-shop, possibly $60 per share.
The TPG deal is valued at roughly 7 times Ebitda, which is on the cheap side for specialty pharmaceutical deals. A strategic buyer could come in with an offer at 8 to 9 times Ebtida, or around $60 per share, according to a UBS note.
Gabelli & Co. has put a private market valuation on Par Pharmaceutical at $67 per share based of a 9 times Ebitda multiple for the generics business and 1.5 times revenue for the branded drug operations.
The question, aside from whether Relational will oppose the TPG valuation, is whether another pharmaceutical buyer will step forward.
The usual suspects in the U.S. are not likely buyers of Par, since they already have the manufacturing infrastructure that a deal for Par would bring, an analyst said. The best hope would be that a foreign buyer, possibly a Japanese company, tops the TPG deal as a means of entering the U.S. generics market, he said.
Since Relational has been pushing for a sale, potential strategic buyers of Par Pharmaceutical have already had some opportunity to consider an approach.
Relational's ongoing point of view will affect the trading in the stock, an arb said. Even if there is not another bidder during the go-shop, Relational could try to force TPG to pay more to get the deal done, he said. That the buyout was announced without support from Relational only lends credence to the idea that they could see more value than $50 per share, he said.