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What's going on?
Actelion‘s stock dropped 10% after US pharma giant Johnson & Johnson (J&J) walked away from trying to buy the Swiss drugmaker but there was a twist.
What does this mean?
With J&J backing away, French pharmaceutical giant Sanofi has (reportedly) become interested in buying Actelion. Like J&J, Sanofi is seeking out new drugs to help it drive its future growth and Actelions portfolio of relatively new drugs could help deliver that (companies can typically charge more for newer drugs that have few or no competitors). The problem, however, may be that Actelion is simply demanding too high a price from any potential buyer. Apparently, J&J wasnt prepared to pay the price that Actelion was demanding and its far from clear that Sanofi will be either.
Why should I care?
For the stocks: Short-term loss, long-term gain for Actelion’s stock price?
Its natural that when a potential buyer walks away, the target companys stock price declines. But Wednesdays 10% fall also suggests that investors are skeptical that the new possible buyer, Sanofi, will agree to pay Actelions desired price. Of course, thats bad for Actelions stock price today. But there may be a very good reason that Actelion is demanding a high price: it clearly feels that its current drugs, and those in development, are worth more money. If thats correct, Actelion’s shareholders will likely be rewarded in the long-term.
The bigger picture: Johnson & Johnson is on the prowl.
J&J has said that buying smaller, higher-growth companies is a strategic priority for them so they are likely to spend at least some of the money earmarked for Actelion on one or more other companies. The question, of course, is which ones?!
Originally posted as part of the Finimize daily email.
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