Saturday, May 18, 2013

Merck CFO To Talk About "What's Next" -- At UBS In Manhattan Monday Morning

Assuming I am not stuck in meetings (or attending to other duties), I'll tune in -- at least for the replay, at day's end. My guess is that he'll offer a little local color on the largest single takedown debt deal in Merck's history, just completed this past week. UBS Investment Bank was a co-lead underwriter, on the 2016, 2018 Floating Rate, 2023, and 2043 Notes (see the prospectus cover page, bottom table -- tombstone lineup).

I'll also point out, in passing, that all the underwriters had a significant conflict of interest last week. That is so, because Merck intends to use the bulk of the $6.5 billion borrowed to buy-back its own common stock. So, it is true that the underwriters -- UBS included -- were essentially raising the money, from their clients. . . to help pay themselves, as they run (and, in various combinations, from time to time actually sell Merck back some of the bankers' own Merck stock-holdings -- and their clients' holdings, of Merck common stock) -- all as the massive Merck $16.5 billion stock buyback program steams out of the roundhouse.

Thus, they are all "conflicted-interest" underwriters, but largely exempt from the special rules applicable to conflicted-interest underwriters -- since Merck's paper is high-end investment grade, and comes from a seasoned issuer. [See the prospectus quote below.]

I bet Peter Kellogg won't mention any of that -- but feel free to register, and listen in, yourself. 

That said, I don't expect any major news on the overall business fronts, given that the Womens' Health lead just presented last week at another conference, and had little new to say -- and nothing of a materially-new nature. Here's the prospectus disclosure I mentioned above (page S-23), folowed by the EON notice, announcing the UBS conference:

. . . .We expect that a substantial portion of the net proceeds from this offering will be used to repurchase our common stock through one or more of the underwriters. Accordingly, affiliates of one or more of the underwriters will receive more than 5% of the proceeds of this offering, not including underwriting compensation. As a result, such underwriters will have a "conflict of interest" as defined in Rule 5121 adopted by FINRA. Consequently, this offering will be conducted in accordance with Rule 5121. No underwriter having a conflict of interest will confirm sales to accounts over which discretionary authority is exercised without the prior written consent of the account holder. In accordance with Rule 5121, a "qualified independent underwriter" is not required because the notes offered are investment grade rated, as that term is defined in Rule 5121. . . .
. . . .Peter N. Kellogg, executive vice president and chief financial officer, Merck, is scheduled to present at the UBS Global Healthcare Conference in New York City on May 20, 2013 at 10:30 a.m. EDT. Investors, analysts, members of the media and the general public are invited to join a live webcast of the presentation at: . . .

As to the UBS $50 stock price target -- we will see whether UBS analysts offer an upward revision, after the talk. I'll let you know, if they do. It is absolutely true that all these debt underwriters now have a powerful incentive to increase their price targets, on Merck common stock -- and thus (they would hope) increase the price at which Merck buys back the common stock they hold, and the stock their clients hold. Do stay tuned.

I'll offer some analysis of what FINRA rules -- 5121 in particular -- will mean, in terms of Merck's likely NYSE mid-term price trend, tomorrow morning, over my Sunday morning coffee.

1 comment:

Condor said...

Okay -- let's set a marker, to get specific:

On Friday, Merck closed at $45.99 on the NYSE.

So let's call that $46.

My predicition is that, on average, over all the trading days in the month of December 2013 (weighted for daily trading volumes, of course), Merck will have acheived a price in excess of $48.75.

That much seems like a lay-up, on the financial levers alone. So, it could be better than that -- but I highly doubt it will be worse than that.

That's as granular As I can get, with confidence here at mid-May 2013.