Dialysis giant Fresenius Medical Care AG (NYSE: FMS) has big expansion plans, and part of its strategy relies on bulking up its drug business. Recently, Fresenius announced it's acquiring Akorn Inc. (NASDAQ: AKRX) for $4.3 billion. How does this deal help Fresenius execute on its plans?
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In this clip from The Motley Fool's Industry Focus: Healthcare podcast, analyst Kristine Harjes and contributor Todd Campbell dig into the details of the deal and discuss what Akorn investors might want to do now.
A full transcript follows the video.
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This video was recorded on April 26, 2017.
Kristine Harjes: First,wewanted to give a quick answer forShiraz,one of our listeners who iscurrently stationed in Tokyo, whowanted us to cover theFreseniusandAkorndeal. I hope that I'm saying that word right, Fresenius, which is a German healthcare giant. They acquired this smaller drugmaker called Akorn yesterday in a $4.3 billion deal.
Todd Campbell:Fresenius is very well known to manyif you've driven by and seen theirdialysis centers. It's avery large European company, but they get 70%-plus of their saleshere in North America, andthey get the bulk of all the revenue byproviding these services todialysis patients. What we'reseeing them do recentlyin the last year or so, they have a new CEO in place who'svery focused on diversifying out his revenue streams.Specifically, he wants to bulk up onhis exposure to medicine. Aspart of that, he has agreed to spend $4.3 billion on Akorn, plus assumed debt. That works out to about $34 a share.
Harjes:Right. Therea couple different reasons why they're doing this. As you mentioned, this is a company that'slooking to expand. They've had a bunch ofdifferent deals around Europe, and this buyout will actuallyexpand their geographical footprint within the U.S. as well,particularly because it gives them access to Akorn's distribution channels. The deal issupposed to be accretive to net income by 2018. This has beenreally good news for Akorn shareholders.
Campbell:Yeah,there's a huge pop in sharesbecause this was a nice, big, fat premium. One of the things that always comes upwhen you talk about deals like this is,do you think there could be another suitor that could emerge? Should I stay in my Akorn shares, or should I sell them? Youhave to realize that this is an international company buying Akorn; there's going to be some review that needs to occur from a regulatoryperspective. The deal probably won't close until 2018. Personally, who knows ifsomebody else steps up and tries to make a counter-bid? I don't think the odds arenecessarily high for that, and I tend to always advise people to say no. Usually, it's dead money. This is not a stock deal.I think Fresenius said they're going to finance it by taking on some debt. It's not like you're goingto hang on and eventually get the Fresenius shares, it doesn't sound like, to me, reading through the press releases. I think your money is probably best used somewhere else because of the opportunity cost.
Harjes:Right. There couldpotentially be some triage opportunity, I think shares today are a little bit over $33. But that's not worth it to wait until 2018, to gainless than $1 per share. So the way that I see this,I agree with you, Todd,I don't think anyone else isgoing to swoop in here. There has beenspeculation about this deal for quite a while. Andactually, the majority of the pop in the stock happened when the rumors were leaked, rather than theconfirmation, which came out yesterday.I don't see somebody else stepping in here andmaking an even bigger offer. If that does happen,I will be quite surprised. If I were a shareholder,I would probably just collect my cash now and exit,put your money to work elsewhere.
Campbell:It'sprobably a better bet, Kristine, to take a look at Fresenius shares. That's a company that's growing high singledigits on the top line and the bottom line. Obviously, it's being run by someonewho is expansion focused,focused on growing the company. Usually, these foreign companiesfly a little bit underneath the radar for investors. So sometimes there can be opportunities in looking at these companiesthat are a little bit more underfollowed thansome of the big names that we're more familiar with in the U.S.
Harjes:Right,plus you get that international diversification, which ishelpful if you want to be fully diversified.
Kristine Harjes has no position in any stocks mentioned. Todd Campbell has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.