Saturday, October 3, 2009

Kahi pe Nighaein kahi pe Nishaana - Solvay pharma & Abbott Labs

Solvay Pharma
Last Monday I came across the news article of Abbott Laboratories globally taking over the Pharma division of Solvay. Solvay in India has a listed pharma subsidiary called Solvay Pharma.

Since Monday was a holiday on account of Dussera, I expected the market to not react to the news very fast and digest it completely. The stock had closed the previous trading day at Rs 818. The stock open at 860 and gradually made its way up till and by afternoon I think CNBC had picked up the news and the stock finally closed at 949. I managed to pick stock from 861 to 940 with a average price of Rs 920. Couldn’t move fast in the morning as I got stuck in a meeting but there was clearly a window of opportunity in the morning.

From the way the deal is structured globally there is a open offer that needs to happen according to me from Abbott.

Solvay India released their press release the next day on the deal

Quoting a line from the press release

“ This transaction is expected to closed in the first quarter of 2010, pending the approval by the relevant competition authorities”.

First quarter 2010 sounds so far away that the market lost interest promptly pushed the stock price down and it closed at 909. On Thursday the stock closed at 919 after trading as low as 863 thru the day. Lets see how this plays out.

Now let me come to the more important reason for this post. The law of unintended consequence came into play.

Abbott labs.

I had earlier in my post in May 2008 recommended Abbott at a price of Rs 540 and the Sensex was at 16525. The link is enclosed here. The rationale was a impending buyback at that point at Rs 630. More importantly the parent and the Indian subsidiary had a track record of buybacks and the business throws out steady cash.

The company did a 5% buyback at Rs 630 and announced a Rs 14 per share dividend along the way.

So how did Abbott India react to the news

25/09 – 577 ( Before the news)
29/09 – 679 ( On Tuesday – up 17.5 %)
30/09 – 731
01/10 - 692

The stock is up 20% since the day of announcement. Frankly I don’t see what role Abbott India will have in this acquisition expect for a possible merger at a later date. I am not complaining :-).

Like the title of this post Kahi pe Nighaein kahi pe Nishaana ( Aim somewhere and hit something else)

kahee pe nigaahe, kahee pe nishaanaa

jeene do jaalim banaao naa deewaanaa

Movie - CID ( 1956 )
Singer - Shamshad begum
Music - Op Nayyar
Here’s the Youtube link to it.


Anonymous said...

Dear Ninad,

Thanks a lot for the update. Your ILFS really played well although I missed it. I am planning to get into Solvay. Should I wait a bit more till the dust settled down or I can move in now itself?

Would appreciate a reply from you. Thanks a lot in advance.

Warm Regards

Ninad Kunder said...

Hi Gcpradhan

I would suggest that you do u r independent due diligence while evaluating Solvay. I picked up a stake as the event unfolded anticpating the market to take the stock up. To be honest it hasnt worked out as I would have liked.

Plan to evaluate where the price settles down and take a call whether to hold or to exit right now and re-enter later closer to the event date or if the market misprices the stock.



VISHNU said...

Hi Ninad,

How did you come with the valuation on solvay ? , I could not see how much will come to Indian shareholders if there is a open offer. Can't do any numbers on this and the stock is pricy as well (trades @ 4.5 times Book value)..I wont touch this until I am sure about the price they are going offer.

Anyway..whats your secret of coming up with "Special Situation" ?..You are amazing !!


Ninad Kunder said...

Hi Vishnu

I wasnt recommending buying Solvay in the post. These are opportunities that one can look if u believe that the market has taken time to digest some news. As a matter of fact I have exited Solvay and will write a update on that. The deal fructification is atleast 5-6 months away and one will now sit and wait for the market to misprice at sometime to get into the stock.

And no secrets on special situations just plain hard work :-)