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What To Make Of Mallinckrodt's Nuclear Imaging Sale

What To Make Of Mallinckrodt's Nuclear Imaging Sale
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Mallinckrodt PLC (NYSE: MNK) has inked an agreement to sell its Nuclear Imaging business to IBA Molecular, and would likely use the proceeds to further diversify its pharma growth away from Acthar, Goldman Sachs’ Stephan Stewart said in a report. He maintained a Neutral rating on the company, with a price target of $83.

Unsurprising Move

Mallinckrodt’s announcement to sell its Nuclear Imaging business does not come as a surprise, since management has previously termed this business was non-core, analyst Stewart mentioned. Moreover, a March 2016 Bloomberg article had reported that the company was exploring a potential sale.

Related Link: Piper Jaffray Staying Bullish On Mallinckrodt

Impact Of The Sale

According to the sale agreement terms, Mallinckrodt would receive a total pre-tax consideration of $690 million, including $574 million in upfront consideration, the assumption of $39 million in long term obligations, and $77 million of contingent considerations.

The sale is expected to close in 1H17 and is subject to approval from the US Nuclear Regulatory Commission, Committee on Foreign Investment in the US, and clearance from relevant competition authorities.

“Using MNK’s 2015 CMDS asset sale as precedent would imply retained cost could be in the ~$30mn-$50mn range (8%-12% of segment sales). All told, we estimate a 10%-13% EPS reduction and note MNK’s plan to move this asset to discontinued operations from CY3Q16,” Stewart commented. He added that Mallinckrodt would likely deploy the proceeds from the sale of the Nuclear Imaging business to “further pharma growth diversification away from Acthar.”

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Latest Ratings for MNK

Feb 2017Canaccord GenuityInitiates Coverage OnBuy
Nov 2016JP MorganMaintainsNeutral
Nov 2016Deutsche BankMaintainsBuy

View More Analyst Ratings for MNK
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