Category Archives: Jack Hough Glaxo buyout Schering Overpriced November 6

Why Would Anyone (With Real Cash) Aquire Schering-Plough?

Schering-Plough — just this morning — is being hailed as a low- to no-growth pharma, by Jack Hough at the Wall Street Journal. He feels $14.50 ($0.50 below yesterday’s close) is still “too high” a price to pay for Schering common stock. [Recall here, that — in recent times — to be approvable by most shareholders, any buyout-offer ought to come-in at least a 20 percent uptick from the current price per share — or, $18 minimum.]

By Jack Hough’s (overly optmistic future earnings, IMO) calculations, Schering is trading at nine times its future EPS, today. And still he thinks it too-pricey. Many other pharmas are around 12 times future EPS, as to current-market valuations.

I’d actually put Schering’s current price per share at something more like 14 times its sustainable future EPS figures — so, again, over-priced — relative to its peers. Different path, same conclusion:

Glaxo (oft’ rumored — if it buys any other pharma) will likely buy-in, on a more attractive price-to-performance ratio. At antoher company. That is, no one with real hoards of cash, and a working fore-brain, is going to pay “premiums” in this market environment, for Schering.

So — I’d put the possibility of a save-the-day buyout for Schering at “remote“. Quoing Hough, at the Journal, now:

. . . .Schering-Plough offers the reverse proposition: lackluster growth potential, but at a cheap price. . . . the stock’s price of nine times 2008 earnings seem sufficiently discounted. But the deal is soured by a 1.8% dividend yield — too skimpy for such a mature company. . . .