Monday, November 23, 2015

"Pfilergan" Update: "Execution Risk"? In A Flat Market, BOTH Target And Acquiror Fell Significantly -- Announcement Day

Of course the strong declines could be chalked up to a variety of external events -- but a falling overall market today won't be one of them. We may also safely eliminate a "pre-deal" run-up in either name -- for there wasn't one. Finally, I'll note that it is highly unusual -- for a deal of this size not to see at least one of the two participants' stocks show at least a modest pop -- on announcement day. [Fancy that, Mr. Read. . . .]

Personally, I do see some real "execution risks" to getting this deal done -- on anything like the terms announced today (and at the projected correlative synergy values). And so it is at least possible that the 3.44 per cent decline in Allergan's stock, and the 2.64 per cent decline in Pfizer's, reflects a discount -- which I'll label an execution risk discount.

I went out on a limb last night, and guessed that the election year US tax howling will -- in one way or another, eventually strip most of the tax inversion benefit away from this deal. I think the broader market thinks that, now, too.

In prior widely-reported remarks, Mr. Read had indicated that he would likely "still do" the Allergan deal -- even without the inversion tax benefits -- but he plainly also said it would be "at a different [i.e., lower] value."

Some version of that event risk -- coupled to at least some antitrust risk, globally, may well explain today's trading in these two now floating merger arbitrage stocks. Enjoy your pre-holiday cooking nights, one and all. . . Onward!

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