Hapoalim Thinks Valeant Could Go As High As $86 (CEPH)

Hapoalim Securities is out with a research note on the Valeant Pharmaceuticals deal for Cephalon CEPH. Yesterday Valeant offered $73 per share for Cephalon, but Hapoalim thinks it could go as high as $86. In a note to clients, Hapoalim writes, "Valeant is expecting $300 million or more in potential synergies, which seems low in our view. If we assume the company can generate $300 million in synergies and that approximately $200 million of the synergies would flow to the bottom line, then it implies trough earnings for an acquired Cephalon in the range of $464 to $600 million based on consensus net income estimates for 2013 and 2014. The $5.7 billion bid is approximately 10x the average of the trough earnings years. If after performing due diligence, Valeant expects an additional $100 million in net income in those trough years, then we would expect that Valeant's bid could increase by approximately $1 billion or 17% versus the current $5.7 billion bid, or approximately $86 per share." Hapoalim goes on to say, "Cephalon confirmed that it received an unsolicited proposal from Valeant on March 18th to acquire Cephalon for $73 per share and a second unsolicited proposal on March 25th to either acquire the company for $73 per share (~$5.7 billion) or to purchase Cephalon's non-oncology related assets for $2.8 billion. Cephalon is working with its financial advisors to review and consider each proposal. Cephalon's Board of Directors is scheduled to meet to consider the proposals and planned to respond to Valeant during the week of April 4th and will respond in due course. Following the board meeting, we would expect Cephalon to allow Valeant to perform more detailed due diligence that will likely lead to a higher bid." After the news hit the wires yesterday, shares of Cephalon were trading higher than the initial bid, and continue to do so today. At last check, shares were trading at $75.26, a gain of $16.51, or 28.1%.