New CEO From Valeant May Mean Endo Takeover Imminent

| About: Endo International (ENDP)

By Barry S. Cohen

Why would Endo (ENDP) see a huge jump in its shares earlier this week driven by unprecedented volume? After all, the company had just been downgraded by Piper Jaffray to underweight from neutral with a price target of $22 due to an uncertain outlook for generic drugs.

And in December Endo lowered its 2013 forecast for EPS of $4.40 to $4.70 per share on revenues of $2.80 billion to $2.95 billion. That's down from the month-prior prediction with an EPS of $5.20 to $5.40 per share and revenues of $3 billion to $3.02 billion. On top of that, last week the company reported a revenue gain of more than $750 million for the fourth quarter of 2012, up just under seven percent but short of analyst projections. On the positive side, EPS increased 26.5 percent from $1.28 in the previous quarter, which was higher than Wall Street expected.

Was all the activity in the company's stock based on optimism about the new CEO's ability to revive the Chadds Ford, Pennsylvania-based producer of specialty pharmaceutical solutions? Or was it because he's likely to oversee an orderly transition to new ownership? I'm betting on the latter.

That a buyout may be in the works was undoubtedly driven by the company where Endo's new CEO formerly worked - Valeant Pharmaceuticals (VRX), long a rumored suitor. Come March 18, Rajiv De Silva will become Endo's head honcho, replacing retiring CEO David Holveck.

De Silva has been with Valeant since 2009, serving as president and also acting as chief operating officer of its specialty pharmaceuticals branch. Previously, he was a senior executive with Novartis (NVS). De Silva expressed excitement about his new role, pledging to commit to top-line growth, improve cost management, and create shareholder value.

Will he get the chance? Methinks not, at least under the Endo name. I say he's a Trojan Horse, brought in to mastermind the changeover to new ownership. That would certainly make the folks at Fidelity Investments happy. As Endo's largest shareholder, they've been clamoring for a buyout that would enable Fidelity to recapture some, if not all, of the more than 17 percent the company has lost in market value during the past year.

A takeover would also move Valeant one step closer to its quest to join the ranks of Big Pharma, with sales in the $20 million range. The Canadian company already gobbled up dermatology firm Medicis for $2.6 billion in December. But Valeant might have to move fast to claim Endo. Rumors persist that Warner Chilcott (WCRX) and Teva Pharmaceuticals (TEVA) also have their sights on Endo.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: By Barry Cohen for Stock Traders Daily. Neither Mr. Cohen or Stock Traders daily receive compensation from the publically traded companies listed in this article for writing this article.