Note: The Skinny blog is written by Rick Smith, editor and co-founder of WRAL Tech Wire and business editor of WRAL.com.
RESEARCH TRIANGLE PARK, N.C. – Fred Eshelman, founder and chairman of Pharmaceutical Product Development (Nasdaq: PPDI), certainly has found the cure for his company’s recent stock ailment.
On Monday before the markets opened, PPD said it had agreed to go private in an all-cash deal valued at $3.9 billion with two private equity firms. The Carlyle Group and Hellman & Friedman will pay $33.25 a share. (Read the details here.)
By noon, buyers had driven PPD shares above the offering price with a 26 percent jump in less than 3 hours. Remarkably, more than 21 million shares traded hands. The daily average has been a mere 1.5 million shares. By the close, nearly 34 million shares were swapped.
Will the buying frenzy bring other players into the deal mix and perhaps drive the price higher?
Eshelman left that option open. He has 30 days to solicit better deals. If he does, then Carlyle and Hellman have a chance to match.
That’s great news for PPD investors – especially Eshelman.
According to data published at Yahoo, Eshelman is the largest individual shareholder in the company at nearly 7 million shares and a value north of $200 million. He’s the second largest holder overall behind Wellington Management at 8.3 million shares. (Note: The Triangle Business Journal reports that Eshelman owns more than 8 million shares, including options. TBJ cited FactSet Research Systems as the source for the data.)
Plus, even at Monday’s rising prices PPD’s value was below a top target price of $38 as set by Wall Street analysts. The average is $34.80.
Bloomberg, meanwhile, reports that the value of the deal would have been higher if not for Wall Street doldrums.
“Carlyle, based in Washington, had been in exclusive talks with PPD since at least August, five people with knowledge of the matter said at the time,” Bloomberg said. “It had topped bids from companies including Blackstone Group LP and KKR & Co., with most offers at that time between $33 a share and $38 a share, according to the people.”
Before the deal was announced, six analysts rated PPD as a “strong buy”. Three others were “buy” and six rate it a “hold.”
Friday’s closing price of $25.66 reflected PPD’s frustration with its stock price. On July 17, The Wall Street Journal reported that PPD was mulling the possibility of a sale with the price at $27.72.
Eshelman issued a statement the next day:
“While the company generally has a policy of not commenting on speculation, we want to assure our customers and employees that the company remains focused on executing its long-term business strategy. We are absolutely dedicated to performing for our customers and committed to executing the important research programs that they have entrusted to us.”
The initial reports sent PPD to $32.91 – a new 52-week high at the time. The momentum carried into August with another 52-week high of $330.07 on Aug. 16. Shares then began to slip.
In a statement Monday, Eshelman said he was “proud” of the firm and the accomplishments that produced the $3.9 billion deal.
“This transaction, and the resulting value we are delivering to our shareholders, is the result of years of hard work, dedication and a commitment to excellence by PPD employees around the globe,” he said. “I am very proud of what our employees have accomplished together.”
Unfortunately, the past three years haven’t been kind to PPD. Its shares stood at $47.41 on Jan. 14, 2008. PPD shares plummeted in October along with virtually all other stocks in the midst of the financial crisis. They hit a low of $19.37 in April 2009.
It’s been a long slog back since then, including the spinoff along the way of its drug development arm as Furiex Pharmaceuticals and Eshelman returning as acting CEO earlier this year after David Grange retired. Veteran life science exec Ray Hill was named CEO two weeks ago.
Should the PPD deal go through, it would be the climax of quite a career.
UNC’s School of Pharmacy is named after Eshelman. He graduated from there in 1972 and went on to found PPD as a one-person consulting firm in 1985 in Maryland. Eshelman moved his fledgling company to Wilmington in 1986. After a decade of rapid growth, Eshelman took PPD public.
Now he plans to take it private, unlocking shareholder value along the way.
However, three law firms announced plans to investigate the deal in a mere three hours after it was announced. They want to know if PPD could have negotiated an even better deal.
In the next 30 days, Eshelman may do just that.
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