Buy-Back with Huge Cash of $486m to add value to ALL Shareholders
Use TARO's huge cash hoard ($486m as of Q3 2012) currently earning little to no interest to buy cheap TARO shares. Even if TARO can pull off 7m shares at $65 it is a huge value creation for TARO shareholders.
1) Rationale for buyback: TARO at $50 trades around 5-6 times LTM earnings. Back in November 2012, Valeant Pharma announced a significant stock buy back program when its shares were trading at around 15 times LTM earnings. So since TARO trades at 5 times LTM earnings one would think stock buy back is a compelling opportunity for TARO to add value to all its shareholders.
2) Another Rationale for buyback; Obviously majority shareholder thinks TARO is overvalued at $39.5 based on today's statement that it was in the best interest of BOTH sun and taro. Buyback will give an opportunity to sell its shares at a price closer to $60-$70 ...much higher than $39.5 which sun thinks is not good for its shareholders.
You are wrong. It is not even a week since the cancellation of "this" offer, and taro is already is within %18 of your $65 target. Let the market do its stuff before you waste $486M with some financial engineering.
cash is called gun powder for a reason. this accumulation of gun powder gives a perverse incentive for the majority shareholder to come up with another low ball offer-$90? . Exhaust this cash, the incentive will be much much lesser for the majority, as majority will need to come up with financing for this offer.
plus as sent to you over email yesterday , buy back will add value to loyal shareholders.
which obviously is not interested in any of these measures. At this point I would expect Sun to wait patiently for Taro's business and stock price to take a breather and then come up with another offer.
Actually I am wondering why they don't just raise their offer to a price which will be acceptable to outside shareholders (perhaps $65) which would result in a purchase price of around $1.1 bln for the remaining shares - almost half of that would be financed by Taro's own cash on the balance sheet with the rest to be paid off by Taro's cash flows within 3-4 years.
hageneriksson, you've got one thing right and one thing completely wrong . I accept your title-there won't be a buyback or a dividend anytime soon I guess as the business is still majority owned by Sun. Congratulations this is correct!
Now to the more humble part of you post. The "$65 blasphemy" . If you have not followed the M&A in the Pharma Dermatology segment, then FYI and according to Bloomberg, these are done at 15xEBITDA (Taro is better)..And SUN even paid for DUSA 22xEBITDA. Taro's last Q EBITDA's was $104M, annualized it is $420M, implying about $141/share , if you take into account the newly open EU market for Taro, then even $140/share looks cheap. So if you arre invested in Taro, just by this simple post I almost triple the value of your investment. My pleasure.