Merrill. I'm no longer in PDLI, but this price level makes it look interesting.
Third Point sells position in PDL stock, raising questions
Third Point LLC, which launched the shareholder activist efforts back in March to
remove senior management and effect strategic changes, sold the remainder of
its position in PDL stock, raising questions from investors regarding the reason
and timing of the sale. With the company undergoing a strategic review with sale
of the company as a stated goal, why sell now? Third Point may have simply
wished to take profits or perhaps it was frustrated that it could not drive the
transaction process because it did not have Board seats (as stated in Oct. when it
sold half its position). In any event, the stock has retreated back to levels not
much higher than our estimated valuation for the antibody royalty stream and is
undervalued. Reiterate Buy.
Waiting for results of strategic review
We assume PDL is considering all potential transactions in order to maximize
share holder value. One possibility is a sale of the entire company in one
transaction, and a second is a sale of the products to one party and sale of the
remainder of the company to another. In our opinion, a series of asset sales only
makes sense if the collective valuation of the sales is attractive in view after
accounting for the potential taxable events. Gains from the sale of the commercial
division would likely be offset by the NOLs. Importantly, we hope that any
attempts to monetize the royalty stream not involving the sale of the company do
not undervalue the royalties. Thoughtful transactions rather than a fire sale are
needed, in our view.
Stock undervalued, reiterate Buy
Our price objective of $27 is based on a sum of the parts NPV model, which
excludes estimated value for the biologic manufacturing plant and capabilities,
NOLs, IP and any antibody royalties beyond 2014. (Any antibodies
commercialized out of the company’s humanization agreements (not the patent
license agreements) would result in royalties beyond the Queen patent
expirations.) |
