Yesterday, at the annual Obagi Medical Products (OMPI) (pps: $13.60, market cap: $254.76M) shareholders meeting, shareholders overwhelmingly voted against ratifying its shareholders Rights Plan, also know as a "poison pill," by a 3 to 1 margin. The proposal by management was carefully considered and recommended by a leading proxy advisory firm, Institutional Shareholder Services, but still nonetheless, voted down.
Created in the 1980s by M&A lawyer Martin Lipton, the so-called "poison pill" is a tactic public companies use to thwart hostile takeovers. In effect, it is an agreement adopted by a company's board of directors that makes the target's stock prohibitively expensive or otherwise unattractive to an unwanted acquirer. To date, no takeover bid has ever seen a poison pill fully executed - management teams typically have used the strategy as a deterrent and negotiation tool, buying their company time to bargain for a better purchase price.
But shareholders often rail against the tactic, arguing that they don't always have the right to vote on the bid, and that a takeover bid that management finds unwanted could actually be in their best interest. Consequently, many public companies that become acquisition targets face the awkward decision to either appease investors or lose one of their most effective weapons against hostile takeovers.
Voce Capital Management recently publicly reiterated its opposition to the "poison pill" implemented by the Board of Directors of Obagi and again was vocal in its opposition to the proposal at yesterday's shareholder meeting.
The pressure appears to be mounting, as sources continue to tell biomedreports.com that an $18-$20 "all cash" buyout of the firm may finally close.
There has been considerable buzz now for a few months that several offers for the company were turned away without being properly considered by OMPI management. Shareholders since have become suspicious of management's intention to impose a poison pill, with many citing the fact that management owns 0.67% of the company stock - putting its own interest above the shareholders. Many believe that because management basically has no stake in the company, they do not want to sell the company, which would result in most of management losing their high paying jobs with little compensation in return. I agree with the shareholder view in this case.
Cantor Fitzgerald analyst Irina Rivkind believes a possible candidate to buy-out OMPI is Medicis Pharma (MRX), which recently announced $450 million in new financing that COULD be used for M&A activity. Medicis may find the OMPI internet pharmacy initiative strategically interesting to further innovate its "alternative fulfillment" program and generate additional revenue in its acne franchise. Medicis is a specialty pharmaceutical company, engages in the development and marketing of various products for the treatment of dermatological and aesthetic conditions in the United States and Canada.
Other potential candidates include:
L'Oreal (LRLCY.PK), which offers various consumer products, such as skin care, make-up, hair color, hair care, and styling products under the LOréal Paris, Le Club des Créateurs, Garnier, Maybelline New York, Softsheen Carson, and Essie brand names. L'Oreal could also benefit
Valeant Pharmaceuticals (VRX), a leading developer, manufacturer, and marketer of pharmaceutical products in the areas of neurology, dermatology, and branded generics has also been reported to have interest in OMPI.
Allergan (AGN), a multi-specialty healthcare company primarily in the United States, Europe, Latin America, and the Asia Pacific that discovers, develops, and commercializes specialty pharmaceutical, biologics, medical device, and over-the-counter products for the ophthalmic, neurological, medical aesthetics, medical dermatological, breast aesthetics, obesity intervention, urological, and other specialty markets worldwide.
Shareholders of these companies might want to monitor events surrounding what looks like a likely buy-out by one of these companies of OMPI in the very near future in my strong opinion. Any offer made by any one of these companies could have a significant affect on the stock price of the acquiring company.
Recently, Fougera was sold for 3.55 times sales, suggesting an offer could be as high as $23 a share should one appear. OMPI has a very low market cap of $244.27M, adding even more attractiveness and validity to this rumor in my opinion. A buy out price of $20 a share would equate to a total cash deal of approximately $345M based on OMPI's 18.73M shares outstanding - a dirt cheap price considering the value OMPI would bring to all the companies mentioned above.
Even if OMPI is not acquired in the near future, and to the best of my due diligence, it appears to me to basically that a buy-out is a given, the company does have nice long term investment prospects, so investors might want to consider this as well.
Disclaimer: This article is intended for informational and entertainment use only and should not be construed as professional investment advice, but rather my opinions as a writer only. Always do you own complete due diligence before buying and selling any stock.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.