“Two Roads Diverged In A Wood” — Valeant vs. Merck — Today On NYSE

I just saw that one analyst (in Canada, natch!) tried to argue that the sharp decline in Valeant’s shares today was the result of short sellers who hope to pick up shares cheaply, when Valeant launches its $1.5 billion to $2 billion stock offering, to fund the Bausch + Lomb purchase price (in part).

I think the nearly 5 per cent decline on heavy volume is more simply explained. I think people are waking up to how well the syneries have to go — and how quickly — in order for the deal to make economic sense.

Consider that when Merck bought Schering-Plough, for $41 billion, it forecast only $3 billion of savings (or around 7.3 per cent of the purchase price), and that over three years. Valeant is forecasting over 17 per cent of the cash to Warburg purchase price in savings/synergy, all completed by next year’s end. Once again, the people running that deal are inflating their bubble-lines just a little too much — and it may yet burst. That, in my opinion, best explains today’s action — on Valeant.

Conversely, Merck soared, taking all of the Dow-Jones along with it — on solid Phase II immune-boosting cancer candidate study results. So the two paths did diverge, in a wood.

And “Fast” Fred ought to get used to a lot more of this, in the coming weeks and months.

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