Monday, November 21, 2011

Gilead Will Obtain No "Fairness Opinion" From a Banker, As A Condition To the Pharmasset Deal

When Merck (on an opinion from JP Morgan) busted-up/bought Schering-Plough, and when Pfizer (also on an opinion from JP Morgan) bought Wyeth, each of the parties -- the acquiror, and the target -- in each deal obtained written fairness opinion(s) -- that the deals were fair from a financial point of view, from a reputable investment bank.

Not so, early this morning, in the case of Gilead -- as it announced a purchase of Pharmasset. Let's puzzle as to why that might be so, shall we?

Only Pharmasset (i.e., the target), per Section 5.3(a), on page 46 of the SEC-filed merger agreement, is slated to receive such a so-called fairness opinion. Interesting. The opinion will be given by Morgan Stanley, by the way -- the same firm that gave Schering-Plough its fairness opinion, in the Merck bust-up (Goldman Sachs & Co. also gave Schering-Plough an opinion, BTW).

I guess when you're paying about one-third of your market cap, in cash, today, for what many analysts estimate might be around $3 billion a year by 2018, and beyond (i.e., more than six years away -- and all subject to FDA, NICE and EMEA approvals). . . it gets tough to find a banker that will say such a deal is fair, from a financial point of view, to the holders of Gilead common stock.

I am just sayin'. . . Wow.

[That might be some evidence -- should dissident shareholders of Gilead decide that they are taking a bath here. . . their own board didn't procure a fairness opinion, to protect them (and the board, itself). Wild.]

1 comment:

Anonymous said...

It's corporate suicide on the part of Gilead. Your analysis is spot on and easily demonstrates that there is no up side to the deal for the buyer. So what is motivating their board? Golden parachutes and the end of their careers?