Is Biovail's Founder Exploring Privatization?

Shares of Biovail Corp. (BVL) shot up nearly 6% on Thursday after its founder, Eugene Melnyk, sent a letter to the board suggesting he may try to take the company private, sell his stake, continue to hold his shares, or seek changes to the board.

But similar overtures were made back in 2005, when press reports indicated that Mr. Melnyk was exploring privatization, noted Douglas Miehm at RBC Capital Markets. Obviously, no such bid materialized, so investors may remain skeptical even though this time around there was a formal letter, the analyst told clients in a note.

While Biovail closed at C$14.39 in Toronto and $14.72 in New York on Thursday, Mr. Miehm’s sum-of-the-parts analysis produces a fair value for Biovail’s products at roughly $17 per share, which includes regulatory fines and settlements of roughly $1 per share. However, the figure excludes the value of the specialty pharmaceutical company’s product pipeline and dividend.

While the stock had recently fully discounted Biovail’s research and development risk, which essentially gave investors a free option on its 11 product pipeline, Mr. Melnyk may be using his improved insight relative to the Street in an attempt to leverage the value of this pipeline, the analyst suggested.

So what might a bid look like? Mr. Miehm said while the privatization option is a surprise, it is nonetheless consistent with his view that the stock is undervalued. However, he insists that it is difficult to gauge the chances of it happening given the limited information out there. But he did estimate a price tag, saying a range of $16.50 to $18.50 might be a good starting point.

Comments

[JohnD:]

Melnyk's "overtures" in 2005 should not be characterized as "similar". As a former CEO of public, NASDAQ listed company I can tell you that the [legal] risks associated with attempting to privatize the company or take control/buyout of the common stock by a member of the board of directors is astronomical. Think of all the people that bought stock at a price above the potential buyout price. There is sure to be a class action lawsuit and the likelihood of the plaintiff succeeding is far greater than if it is done by someone not on the BOD. Therefore, Melnyk's resignation may be the first step in a more serious effort to take control of Biovail.

- John D

2008 Mar 15 12:13 AM