Another update

February 2012 update


CER - Consolidation - 5.29 to 1 conversion for new CRF units.


FGL - Taken out by SABMiller. 


PPX - Lessons learned. Dismal operating performance - not a great idea to fight major structural/macro headwinds. Maple-Brown selling out - big-name shareholder is an indicator only  they frequently get it wrong just like the rest of us. 


General rule - don't invest in turnaround stocks unless you know the catalyst is coming. Examples of the turnaround waiting game - Transpacific, Gunns, Elders, Goodman Fielder, Nokia - these stocks have been under the weather for some time. Until you see material improvement or can foresee a near-term catalyst with accuracy - e.g. Mike Burry's 2 year window for interest rates on sub-prime mortgages to reset - don't get involved. 


APH - Ascent Pharmahealth update.  APH was taken out by major shareholder Strides Arcolab for 40c a share in 2010 - c$100m for the whole entity.  


At the time I said it was a steal for Strides - shareholders got taken out by Strides at an estimated PE of c8x-9x. Of course, the Independent Expert's report said it was a fair deal.   


Fast forward to 2012, and Strides sells APH to Watson Pharma for $375m.   Their stake was 94% - APH CEO Dennis Bastas sold his share, which was 6%.  All up, APH resold for c$400m.  


Hang on, wait a minute.  How is it that Dennis retained his 6% stake when everyone else got bought out at 40c? Oh, I see - because everyone else was done over. Of course the Independent Expert said it was in the best interests of shareholders.  


It would not have been in the best interests for shareholders to retain their minority stakes for the company to subsequently be taken over in future at a much higher multiple ($400m instead of $100m - only out by a factor of 3x) Of course we didn't know that would happen at the time, but clearly someone bright thought that a PE of c8x-9x for a growing generics pharma business was a fair deal. 


FYI, KPMG was the Independent Expert in the APH deal.