It seems likely that in the next 24 hours we will receive Cephalon’s response to the $73-a- share all cash offer it received last week from Valeant.
From what I’m hearing, that response could include a rejection of Valeant and a plan from Cephalon to seek out other parties that would be interested in purchasing it.
That possible rejection might already be reflected in Cephalon shares, given they are trading more than four dollars above Valeant’s current bid. A spokesman for the biotech company declined comment.
If Cephalon were to seek buyers, the question is whether any would show up. Bankers tell me that while you might have a few companies take a look, Cephalon’s so called “patent cliff” in which its main drug Provigil goes generic next year, would likely serve as a deterrent to any bid. In fact, I’m told that “patent cliff” which will lead to as much as a $400 million reduction in EBITDA, has dissuaded would-be acquirers in the past as well.
Valeant is not as scared by that "patent cliff" because its plan is to rip out costs from Cephalon , including those for research and development and run the company for cash.
It’s a strategy not disimilar from one that would be adopted by any private equity (PE) buyer for the company and I have in fact heard that PE firms had been sniffing around Cephalon before it received the Valeant bid.
Given Valeant has a lower cost of capital than PE firms and a similar strategy, it’s not clear if Cephalon could find a competing bid from PE.
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