If you read the entire article, Naimi said there is a good chance of $0.00 oil for the next two decades, just like ZIRP.....
He's currently enrolled at pundit school with an eye on a future CNBC guest spot. Just another poster to add to the ignore list along with "juan" et al.
My quick read of the merger agreement was the break-up fee of $250 MM was a reciprocal arrangement. If CBST gets a superior offer from another party, then CBST (actually the new acquirer) must pay $250 MM to MRK. If MRK walks away for a reason that does not put it in breach of its obligations within the merger agreement, then MRK must pay $250 MM to CBST. In any event, the ability to walk for either party are extremely limited. The $250 MM break-up fee implies that CBST would need to get an offer of approximately $105.00 per share to justify, from an economic standpoint, terminating the transaction with MRK and paying the break-up fee.
The discount represents the time value of money until the deal closes (sometime in Q1 2015) and any risk that the deal might not close on time or at offer price of $102.00 per share in cash. Assuming the transaction closes on 2/15/15, this represents an investment horizon of 67 days for the risk arbitrage investors. At the current price of $96.20, this represents a discount of approximately 5.7% or an annualized return of 32.6%. These figures say to me that the risk of transaction being terminated and / or done at a discount to the current offer price of $102.00 per share are de minimus.
The management of MRK and their advisers were well aware of the litigation risk between CBST & HSP when they negotiated the $102.00 per share offer. I'm guessing one of the reasons for the relatively low acquisition premium (sub-40%) was to factor in any negative potential outcome from this litigation. Most importantly, this announcement does not trigger the material adverse change (MAC) clause in the merger agreement so either MRK pays $102.00 per share or walks and pays CBST a break-up fee of $250 MM.
The buyout of CBST by MRK has minimal if any impact on CBSTZ. MRK is NOT purchasing CBSTZ as a result of its purchase of CBST. CBSTZ is the ticker symbol for the publicly-traded contingent value rights (CVR) that CBST issued to the former shareholders of Optimer Pharmaceuticals when it bought the company back in July 2013. CBSTZ is worth anywhere from $0 to $5.00 based on cumulative sales of Optimer's drug, DIFICID from the 7/1/13 - 12/31/15 time period. DIFICID is a FDA-approved treatment for CDAD that was a key drug in Optimer's portfolio. Here are the cumulative sales hurdles for the potential CVR payout:
CVR payout is $0.00 per share
$250 MM CVR payout is $3.00 per share
$275 MM CVR payout is $4.00 per share
$300 MM CVR payout is $5.00 per share.
Through the quarter ended 9/30/14, cumulative sales of DIFICID are approximately $59.9 MM and have been growing at about 10% each quarter. I estimate that average quarterly sales growth would need to increase to approximately 27.5% over the next five quarters to reach the first milestone ($3.00 payout). Such a ramp-up seems unlikely so I am assuming the CBSTZ will expire worthless.
I spoke with world renowned psychic Miss Cleo late last night and she said I should expect an answer on Tuesday, January 20, 2015 at exactly 8:38 AM EDT.
I agree with your synopsis. My wife used to work at E&Y and I got her take on the situation. Here are our collective thoughts:
(1) The company should not have been "surprised" that E&Y resigned suddenly (I'm guessing this has been building for awhile). If management was in fact surprised, then the CFO should be fired for poorly managing the relationship with its external auditor.
(2) Companies like PDLI present significantly more audit challenges than a traditional manufacturing or service company especially with the introduction of fair value accounting. E&Y could probably find other auditing opportunities that are more profitable (less time & higher fee).
(3) E&Y's audit-related fees went from $366,000 in fiscal 2012 to $958,000 in fiscal 2013, an increase of 161.7%! It makes me wonder whether E&Y has wanted to exit the PDLI relationship for awhile and the starting point was a sharp YoY increase in the audit fee.
(4) It might have come down to a simple personality conflict. I'm guessing that the PDLI management team is not an easy date (e.g., constantly involved in litigation with their partners) and maybe E&Y got tired if the audit process was an ongoing battle.
I'm not sure all of the above merits a 20% decline in the stock price. I was always a little surprised that PDLI got a Big Four accounting firm to audit the company and it will be interesting to see if they can get another Big Four firm to step-in for E&Y. I'm guessing they will have to go with a 2nd tier audit firm going forward.
As a M&A banker, I was involved in transactions across a broad array of industries which required an ability to understand the industry specific drivers of valuation. The depth of the valuation analysis in M&A goes WAY beyond the #$%$ that the majority of research analysts create. My subsequent 10-years on the buyside as a research analyst with a CFA charter provides me with the tools to evaluate the quality of an investment thesis. Just because you have 18-years of small-cap biotech investing experience plus your work in clinical-trial analysis does NOT automatically mean you are a successful investor. To me, one of the key tenets of generating attractive risk-adjusted returns is understanding the bear-case (when you're long) and the bull-case (when your short).
I currently manage a small investment partnership. We view ETRM has highly speculative so our long position represents less than 1% of our total portfolio. We think ETRM provides interesting optionality on the obesity space and our adjusted cost basis is about $0.75 (after various put & call transactions). Worst case - ETRM bumbles along and we exit at breakeven. Best case - the stock goes to $4.00 post approval and we are ex-dividend.
Thanks for not sharing your vast "Wall Street" experience. In the interim, I looked for you on Brokercheck and found nothing. Therefore, I assume you never worked for a registered broker-dealer or you've been "retired" for more than 10-years.
As someone who spent 18 years as a M&A banker, your "analysis" is average at best. Even the one-eyed man is king in the land of the blind when you elect to measure the quality of your analysis against the chuckleheads who post on SA and the Yahoo message boards. Your biography on SA doesn't imply much "Wall Street" experience. Where did you work and in what capacity?
For what it's worth, I was approached by the editors at SA about becoming a Pro Contributor. It was an easy decision to say no immediately. It would have gotten in the way of my day job and the pay is negligible vis-a-vis our AGI.
That's why I've been a SA PRO (paid side) analyst and none of you are. Anybody can get themselves posted as a contributor on the free side. And the managing editor reached out to me (not me to SA) expressly off the strength of my ETRM posting specifically.
Compensation for even SA PRO analysts is chump-change.
$100 for regular "Pro" articles and $500 for "alpha-rich" Pro articles. So 10 published "articles" equals $1,000 - $5,000 of pre-tax compensation to the author?
If you were a real analyst with a long-term, proven track record, you would be at a hedge fund making at least $500k annually.
I'm sure it's difficult being the conscience of investors everywhere. However, if you were really a person with value-added knowledge, you would be working directly with institutional investors and not jerking yourself off with dumb money retail on SA and the numb-nuts on the Yahoo message boards.
Fair enough, but today's stock action makes me feel more confident in my prediction that there will be no buyout nor a special dividend anytime soon. Currently, I am short the $10.00 NOV 2014 calls and would be quite comfortable having my stock called away at that price given my average cost basis of $4.85 while capturing 15 quarters worth of dividend payments.
The stock goes parabolic with over a million shares traded in the final 3 minutes of the trading day. I assume most, if not all, of the volume was attributed to short covering with PDLI trading ex-dividend tomorrow. Yes, it's a new 52-week high, but the previous 52-week high of $10.21 last December didn't even last a day.
Yep, no need to book the loss early if the buyer is long the contract (I still believe it was a call seller).
adeflig: You are formulating a hypothesis based on faulty data (see my post above). Those 109 contracts for the September $2.00 calls traded weeks ago @ $0.08. I'm guessing that volume was on the bid side and not at the ask. If you go to the NASDAQ website, you will see there was no trading volume today in any of the ETRM option contracts for September 2014. Unfortunately, the $80,000 potential return you cited is more likely to be a loss of $872.