Synergy Pharmaceuticals (NASDAQ: SGYP) has been an interesting stock to follow as of late. With a stalking horse bid in, but few details available, investors are debating about whether or not this is a good deal. Well, there are a couple of things that I can say here. First and foremost, it’s a win/win for investors. Second, it may not be what you’re hoping for.
I recently had a great conversation with one of our readers (I’m available to chat at 503-464-6502) who was hoping that the stock would be worth over a dollar per share when all was said and done. While I do believe that the overall value will be well over the current price of the stock at the end of the deal, I don’t believe that SGYP will be worth $1.00 per share or more. Here’s how I see it:
The Stalking Horse Bid to Aquire SGYP
Recently, Synergy Pharmaceuticals confirmed that it had received a stalking horse bid to acquired by Bausch Health. In fact, the company went into a Chapter 11 bankruptcy in order to facilitate the transaction, a process that is still ongoing.
In the announcement, SGYP said that Bausch Health had agreed to pay $200 million and assume some liabilities. In my opinion, this is a great deal. First and foremost, if the deal closes at the current rate, it will likely provide profits for investors (details below).
On the other hand, the bid also opens the door to a court-supervised auction for the company. So, the $200 million plus assumption of some liabilities is the floor offer and there may be larger offers down the road. All in all, this is great news considering the current value of the stock.
Breaking Down The Value Of This Deal
Before we get into what I believe this deal to be worth, it’s important to keep in mind that there is a big question. How much of SGYP liabilities will Bausch Health be willing to assume. While we know that they have agreed to assume SOME liabilities, there is no information available with regard to what some means. Will they assume $5 million or $100 million or more or less? This is a big question. Here’s why:
Currently, there are 248 million Synergy Pharmaceuticals shares outstanding. Considering this, if Bausch Health paid 100% of the liabilities and costs, which isn’t likely to happen, the deal would be valued at approximately $0.81 per share. So, in a best-case-scenario, $0.81 is what shareholders have to look forward to.
Now, it’s also worth mentioning that SGYP has a ton of liabilities. $172.124 million according to the most recently available balance sheet. Should Bausch not cover the cost of any of these liabilities, there would be $27.88 million, or about $0.11 per share left on the table. This won’t happen either, but it’s always good to lay out the worst-case-scenario.
Let’s say that Bausch Health has agreed to cover about half of SGYP liabilities, a reasonable number in my opinion. If this were the case, SGYP would be left with $86.06 million give or take in liabilities, leaving $119.938 million, or about $0.48 per share as the end value of the deal.
In my opinion, based on my math and understanding of what is happening here, the Synergy Pharmaceuticals deal will end up being worth between $0.40 per share and $0.50 per share once it’s all said and done.
It’s important to keep in mind that there are several moving parts at play here. At the end of the day, we don’t know what the judge is going to forgive and not forgive, we have no idea what Bausch is willing to cover in terms of liabilities, and the court docs and final stalking hourse agreement between Bausch Health. So, these numbers are VERY rough numbers and more for entertainment than anything else. Nonetheless, I do believe that the range mentioned above will be the end value to shareholders.
The bottom line here is a relatively simple one. At the current price of about $0.28 per share, this stalking horse bid represents a strong opportunity for potential profits. In fact, by my calculations the deal will result in a profit of between 42% and 78%. Nonetheless, these numbers cannot be gaurunteed as there are too many unknowns and moving parts associated with the deal. Nonetheless, I do believe that shareholders that got in below $0.40 per share will be happy with the end result.
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