Wednesday, April 9, 2014

Stocks DD Cites: Sun-Ranbaxy Acquisition & Ranbaxy's US Derma Products


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Dilip Shanghvi on Sun-Ranbaxy Deal (interviewer asks stupid questions) -> Link

Why Ranbaxy acquisition is a game-changer for SUN
  • Ranbaxy is currently a distressed asset with USFDA issues and the current sales is very low compared to its true potential due to the fda ban on many of its plants
  • Ranbaxy sells in >100 markets in the world including many growing emerging markets. So SUN can cross-sell its products in these markets piggybacking on Ranbaxy already established sales/distribution channels
  • Ranbaxy has pipeline of 40+ ANDA including high value FTF's like Nexium
  • Ranbaxy even has branded products in the developed markets. SUN is good at capitalizing full sales potential for sole-competitor/low-competitor assets.
I wouldn't be surprised if SUN's market cap is many times its current market-cap in a few years just based of this huge value accretive deal for SUN's shareholders.

Ranbaxy's US Derma Products
http://www.ranbaxy.com/products/therapies/dermatology/
Quote
We have a major focus in Dermatology with a presence across markets, including the US, India and Brazil. We have a robust franchise in the Corticosteroids, Anti-infectives and Anti-acne segments. Our current portfolio in the US caters to both prescription and consumer driven Over-the-Counter (OTC) markets, the major brands being Ultravate, Kenalog and Lac Hydrin. We have the global licensing rights to market Luliconazole (a novel Anti-fungal) in 16 markets, including India, Malaysia, Singapore and South Africa. 
 Quote 
Ranbaxty's Absorbica US sales were ~$60m.-> http://articles.economictimes.indiatimes.com/2013-11-26/news/44487256_1_ranbaxy-laboratories-absorica-usfda
Quote: Acne drug Absorica, a generic version of isotretinoin, has been gaining market share since its launch in December 2012. The drug has a total market size of $1 billion (at the price of Absorica), which is growing at almost 15% annually. Absorica's market share in October was 19% and analysts expect it to touch around 24% by the end of 2013-14, given Ranbaxy's 30-month exclusivity period.
"The actual benefit of this will be visible only in CY14 as the company will be seeing over $200-million revenues from Absorica and most of its costs, especially branding and marketing cost, have already been incurred," said Singhal of Macquire. QUOTE
Considering the SUN-Ranbaxy deal, it will be interesting to see how these products will be sold/marketed in future in the US (and if Taro's brand would be leveraged?). Taro has a great, long-established brand in the US Dermatology both among practitioners and patients, although it primarily sells generics. 

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Friday, March 21, 2014

Stocks DD Cites: Bluemountain updates Taro's shareholders and writes to Taro's Board


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Bluemountain updates Taro's shareholders urging them to vote FOR 6a and 6b and vote AGAINST 5a and 5b:
http://finance.yahoo.com/news/bluemountain-capital-management-llc-urges-172500265.html
The proxy vote deadline is March 27th.

Letter sent by Bluemountain to Taro's Board asking for a thorough investigation
http://www.bluemountaincapital.com/taro/ExhibitA_March2014.pdf

1. In the letter, Bluemountain requests a thorough Investigation of "interest"(or lack thereof) in ~3.9m shares in the last proxy vote that voted in favor of BOD's recommendations. These 3.9m shares were held at the same brokerage("BBH") that Sun's taro shares were held. Readers may recall Companies law bars any vote having any personal "interest" in the outcome(family, distant relative, friend, acquaintance,affiliate) from being counted as minority. So it will be very interesting to see who the beneficial owners of these 3.9m shares are ?

2. In the letter, Bluemountain further alleges that the following text in the current proxy are contrary to provisions in company law:
  • Non-indication of voting instructions shall be deemed as a vote in favor of Board of Director's recommendations
  • Non-indication of "interest" shall be deemed as not having "interest"
Top 5 minority shareholders as of 12/31/2013 and number of shares as seen in Whalewisdom. The total num of minority shares outstanding is approx 13m shares.
  • ISZO CAPITAL LP 1,104,068
  • BLUEMOUNTAIN CAPITAL MANAGEMENT, LLC -  676,671
  • HOTCHKIS & WILEY CAPITAL MANAGEMENT LLC - 529,936
  • GREYWOLF CAPITAL MANAGEMENT LP 472,135
  • CONSONANCE CAPITAL MANAGEMENT LP - 263,732

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Wednesday, March 19, 2014

Stocks DD Cites: Taro: 2 Proxy advisory firms back Bluemountain candidates for Independent Directors


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Glass Lewis -> http://finance.yahoo.com/news/glass-lewis-recommends-taro-pharmaceutical-191000607.html

ISS -> http://finance.yahoo.com/news/iss-recommends-taro-pharmaceutical-shareholders-203700464.html

Both ISS and Glass Lewis are asking shareholders to vote FOR 6a. 6b (bluemountain candidates) and simultaneously vote AGAINST 5a. 5b (incumbents).

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Saturday, March 15, 2014

Stocks DD Opines: What Berkowitz and Ackman need to do now!


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GSE shares went down on senate proposal to "wind down" GSE. Politicians are enthusiastic to get their names behind "reforms" without clearly understanding the root cause and the option to fix the root cause. No surprise. Here is what Ralph Nader, Berkowitz and Ackman needs to do without wasting any time:

1. Why NO BIG BANG Reform is needed ? 
  1. Publicly put the ROOT Cause for the 2008 Crisis - it seems like our politicians are suffering from amnesia. The point to prove is 2008 Downturn was a ONE-TIME event created by wrong incentives where players who wrote the Mortgage never bothered about Underwriting quality and these front-end mortgage salesman were happily satiating the demand of mortgages from so-called "investment banks"(eg: Bear sterns) . These "investment banks" could magically hold these Mortgages with less than 2% capital. Here is a frontline investigative story on that. Such a dramatic housing downturn event will NOT happen as reforms have been done to fix root cause. Investment banks don't exist and now they are all bank holding companies regulated with 10% capital ratio. As the GSE's post 2009 portfolio indicates, the underwriting quality has improved by leaps and bounds and the controls(loan-to-value ratio, credit worthiness check on the borrower, etc) taken by market players will ensure it remains that way.
  2. Articulate the minimal reform needed. Publicly prove by Sensitivity Analysis that "public utility model" is sufficient to ensure GSE will not only be profitable at all times in future but soon be well capitalized. By sensitivity analysis using 30 year home price fluctuations, 30 year delinquency and 30 year foreclosure rates prove that Government's role or capital would NOT be needed and the capital generated by GSE will be self-sufficient to endure the next trough in a future housing cycle downturn. Remember the post-2009 portfolio is historically the best quality portfolio that GSE's have had and also remember the multi-decade profitability of GSE (from 1986-2008 -link). Estimate the capital that GSE would have by 2018, if the Net Sweep agreement is revoked and the taxpayers get the 10% dividend. If at all capital is needed, indicate how equity capital could be raised by issuing preferred shares without damaging existing shareholders.
  3. Any unwarranted reform - Risky and may endanger the affordability of 30 year fixed rate mortgage instrument or the instrument itself. Without the regulated public utility model and the implicit Govt backing, the agency MBS would get expensive and the 30 year rate Fixed mortgage (the most unique thing in American housing market) will get expensive. Nobody knows how MBS investors around the world would perceive if the implicit Govt backing on Agency-backed MBS no longer exists.
If the 3 points are done, I believe it may convince lawmakers to NOT act radically on GSE and endangering the affordability of 30 year mortgage and putting in something that is risky and untested.

2. What about the ownership rights of Shareholders in any restructuring ? It is very important for Ackman to articulate the equity value for Shareholders (Govt and Private) in the 'status quo' scenario that legitimately belongs to the Shareholders.

The Rule of Law in America AND the importance of Govt not changing rules midstream without consent from ALL stakeholders.
  1. The Supreme court will decide the Fairness/legitimacy of 2012 amendment a.k.a net sweep agreement at the time when GSE were already Profitable and they were in no dire straits to get capital. If they really needed capital, they could have approached the capital markets and gotten capital at much lower cost to shareholders than the draconian Aug 2012 agreement.
  2. Also, Ackman needs to point out that any Congressional reform on GSE  that is NOT in the best interests of private shareholders and turnabout from the "quasi-govt/private" nature of GSE or the status quo will also be challenged in the Courts. Lets remember this is America (Not a banana republic) and Government can't whimsically change rules midstream.

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Tuesday, March 4, 2014

Stocks DD Cites: Richard Epstein's article on Govt's treatment of FNMA Shareholders


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http://www.hoover.org/publications/defining-ideas/article/169781

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