WSJ Rumor Piece -- Claims Bids On Consumer Health Due By End Of March. We Shall See, About That.

Okay, the "re-re-treading" of rumors -- likely from bankers -- continues unabated, tonight. I like Pete Loftus and Jonathan Rockoff, but again -- they are being fed some truly gooey stuff, by a banker -- with an angle.

This time, it is my guess that this is likely a banker working from Merck's side of the table. I make this guess because the anonymous-source purports to quote a price level that, by the lights of most disinterested observers, would be considered a Merck "dream price" for these businesses, as they now stand. Truly top of the range, at $10 billion. Perhaps even well beyond it.

The Wall Street Journal story claims a possible 20 times EBITDA valuation. Maybe -- if this were the go-go early 2000s. But not here, in the second decade of the New Millennium. No sir. I'd say that even $9 billion is probably too rich, post the melt-down -- and the tightening of margins generally, in over the counter health care items.

So, I'd say three times sales would be a more "in-market" metric. And that would put the price at a little under $6 billion. [2013 revenue was around $1.9 billion, on Consumer Health -- vast bulk of that inside the US.] But we will just call it an even $6B, for easy reference (and, at least somewhat plausibly, there could well be some significant Merck-supplied transition services, offered with the deal).

Before quoting the Wall Street Journal, though -- we must note that we have been writing about this possibility since early 2009. And, here too -- setting up a spin-worthy management transition team (2010). And yes, readers, this would be yet another example of how Mr. Hassan left an intact profitable company to be ripped apart, into pieces, yard-sale fashion -- here over these last four years. Remicade: Mostly Gone. Saphris/Secrest: Gone. Organon: Decimated. Animal Health: JV with Sanofi -- but abandoned (2011). Now, back in "strategic discussions" mode (2014). Yes, as I've always said -- this is a very slow-motion yard sale, underway -- playing out over four years. . . . Sad, actually -- for the legacy Schering-Plough rank and file.

So, with all that intro -- here is what remains a rumor (do go read it all, at the Journal -- if you are a subscriber):

. . . .Merck's effort to sell its portfolio of well-known consumer brands including Coppertone sunscreen and Claritin allergy pills is kicking into high gear, with big consumer and health care industry players expected to put in bids that could top $10 billion, according to people familiar with the matter.

Merck, which has said publicly it is exploring options for the business, has already received preliminary offers for it, the people said. Merck officials will begin meeting with possible buyers next week, and final bids will likely be due late next month, one of the people said.

The business has more than $550 million of earnings before interest, taxes, depreciation and amortization, a person familiar with the matter said. Past deals have valued such assets at multiples approaching 20 times Ebitda, which would give Merck's consumer business a price tag exceeding $10 billion. . . .

As I say, $6 billion is more likely to be nearly the final offeror's top bid. We shall soon see, apparently. And. . . thanks, again -- Fred, Carrie, Tom, Tom and Brent.

In Addition To His $14.3 Million In Stock "Outright", Mr. Frazier Holds "Rights To Acquire" At Least 1.3 Million MORE Shares: Well-Aligned.

As a few more semi-automated drone-financial-publishers blather on -- about Mr. Frazier's exercises and sales of yesterday, I thought I'd call out, as a new post, the vast number of shares he has the right to acquire. And these shares are in addition to his direct holdings. That "right to acquire" figure stands at at least 1.32 million, as of the last proxy filing (see page 46). [He has been granted more since then, but I'll not dig through the SEC archives to find them, as we will see them in a few weeks, as updated, when Merck's new proxy for this year-end cycle is filed.]

Significantly, with Merck trading at or above $53 on the NYSE over the last few weeks, all of these 1.32 million option shares are "in the money". That is, Mr. Frazier could immediately exercise about one million shares (the other 320,000 or so will vest in the coming couple of years) -- if he chooses to suffer through, and pay the taxes, at ordinary income rates (as opposed to capital gain rates) -- and sell them without any meaningful risk of any loss. In that sense, these 1 million option shares (albeit unexercised, but vested) should be seen as additional equity interest alignment, with the common shareholders.

Now, it is certainly true that his losses, overall, should the stock turn south, at least on these 1 to 1.32 million shares, will be proportionately smaller than those experienced by an ordinary common shareholder holding a like amount, for he will have paid less for his, in all likelihood. And should Merck stock roll onward, north -- his gains will be amplified, as compared to a straight common holder, on these 1.32 million shares (as again, he has paid less, in all likelihood). [The graphic at right shows the fully granted amount of unvested options, as well -- as a separate line item for 1.2 million shares.] But remember, he also holds $14.3 million worth of "ordinary" common shares. In that sense -- he IS a common stockholder (and a very large one).

So, I guarantee you that his interests are very-closely aligned with those of the the common stockholders. [Some other quiet snowy morning/day, I will contrast this Merck philosposhy of compensation/incentive alignment (with the ordinary stockholders), with the runaway land-grabs authorized at legacy Schering-Plough, by its board compensation committee, and compensation consultants. There the bets were always stacked -- so that from 2005 to 2009, at least, the executives (especially the Chairman and CEO) literally could not lose. That's my experienced opinion. And Mr. Hassan walked away with perhaps $235 million, all in, for wrecking the company. Nice.] Yes. Another day. Another day. Keep calm, and. . . Carry on.