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CPD: Buyout offer

December 6, 2010 Leave a comment Go to comments

On Friday Sun Pharma made an offer to buyout the remaining shares of Caraco. The offer price of $4.75 is absurdly low, a 5% premium to the closing price on Friday. When was the last time you heard a company taking another company private at a generous premium of 5%?

My investment approach has been to not get involved in situations where I need to prod management or the board to take specific actions. I do not get involved in activist type roles. There are some practical reasons for not doing this. Although in CPD’s case, I did reach out to the IR. I still haven’t heard back from them. For the most part, I will be sticking with my investment approach of not getting involved in company operations.

The offer from Sun Pharma is absurdly low priced. For Caraco, there is not valid reason to go private at this point. The costs for staying public are minimal (I believe the Audit/Attestation fees are less than $100K annually). Caraco is close to getting back into FDA compliance and has no need for urgent capital.

For Sun Pharma, I never understood why they didn’t buy up the minority shareholders when Sun Pharma initially signed the technology transfer agreement. So taking CPD private is likely to be Sun Pharma’s goal for a long time and at the current depressed prices Sun Pharma is getting its best opportunity to do it. When the initial FDA issues appeared with CPD, CPD was trading at a huge discount to today’s market price. Although Sun Pharma couldn’t take it private at that time due to potential lawsuits.

I would expect the independent board members to reject the current Sun Pharma offer as too low. Although Sun Pharma has appointed all the board members at CPD, so there is no guarantee.

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Categories: Updates
  1. Shaun Noll, CFA
    December 7, 2010 at 8:14 am

    this offer is complete theft and as a shareholder I’m furious. I’ve called the board and execs and voiced my concern as well as raised a few threats so we’ll see what happens.

  2. Carl
    December 27, 2010 at 10:15 pm

    Sun is definitely playing hardball with the marketing agreement….looks like $4.75 or else.

    • parasd
      January 1, 2011 at 11:19 pm

      Sun is playing it very smart to make sure they avoid lawsuits and get a low valuation from outside parties. I’m not optimistic about CPD getting a good valuation. I’m reconsidering my holding in CPD, will decide on what to do in the next couple of days.

      Paras

  3. Carl
    January 3, 2011 at 10:23 am

    With a net book value of $3.77 per share, I don’t know how much lower you can get on a valuation. Even with the strong arm tactics by Sun, I still can’t see them abandoning their investment in Caraco…..too many positives. I was hoping for a valuation of $6.50, which would have cost Sun a measley $17.5 million more, but that faded with the marketing agreement press release. Sun obviously has learned alot from their protracted litigation with Taro on how to legally screw the shareholders!

    • parasd
      January 3, 2011 at 5:26 pm

      Sun Pharma is a very shrewd operator. They have played the buyout of CPD perfectly. I wouldn’t be surprised if they took CPD private at current offer price. I think it is a steal and worth much more once it gets the FDA issues resolved. Although we likely won’t get to see that day.

      Paras

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