Yuanxi Zhang
Long/short equity, value, special situations

Simcere Pharmaceutical: Sleep Well With A Low-Risk 11% Annualized Return

Recommendation: Long Simcere Pharmaceutical (NYSE:SCR) at $9.48

Target Price: $9.61

Thesis

Simcere Pharmaceutical's pending go-private deal is likely to close by the end of year. The time horizon of the deal is easy to determine because the deal does not require the MOFCOM approval in China. Moreover, as the rollover shareholders own 77.57% of shares, we do not expect any difficulties in receiving the approval from shareholders. Without any pending lawsuits, the chance that more than 12.5% of shareholders exercise their appraisal right is small. Finally, our valuation model suggests that the intrinsic value of the company is 27% higher than the deal value. As the result of all these favorable factors, we believe Simcere is a safe...

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