Vincent Fernando

Amylin: Icahn's Proxy Damning for Management

The real problem is that institutional investors need to be held more accountable. Basically shareholder voting exists, but most shareholders are usually people who just ticked any box on their retirement account form and don't follow what happening. (nor should they, they are invested in mutual funds with tons of changing holdings). Thus the person who is the watch dog is the institutional fund manager, but as they don't actually own the shares, they really aren't that compelled to take action. Thats why I love to see activist shareholders in action, its how it really should always be whereby management has to meet the demands of shareholders.

Amylin: A Discounted Option on Byetta's Outcome

I am not recommending that AMLN accept a lower price than they should. I am simply explaining what the current situation might be between the three different entities, AMLN, LLY, and Mr. Icahn.

I am then trying to understand if there is an opportunity for new investors to make money in AMLN shares. I am not recommending a course of action for AMLN as a company, I am recommending a course of action for potential new investors in its shares. There is a difference.

If Mr. Icahn were to broker a sale at say $25, and new investors buy at $11, then while AMLN might not be getting the best price it can, new investors will do very well and their risk will be off the table. And if AMLN does indeed end up getting a higher price, one that it perhaps deserves, then new investors will do even better.

My point is not to preach what is best for AMLN as a company, but rather to try to see what the real situation is. My perspective is that of a potential new investor, and to understand the different scenarios that can play out with AMLN shares.

Nevertheless, things have changed a little since I wrote this piece. Mr. Icahn has come out and said that he wanted at least $30 a share for AMLN, and that AMLN misrepresented him when it said he was trying to broker a quick sale. So perhaps then even a near to mid term sale would have to be $30 or more, which would be excellent for new AMLN investors.

Mr. Icahn has pointed out that he has a record of fighting for high buy-out prices when he owns a company. I'm sure he wants to maximize his profit. But at the same time, one must imagine he is cognizant of the fact that if he screws Lilly over, then future deals might not be possible. Thus I am sure he plays a balancing act between making good returns on his investment and also delivering decent pricing to the acquirer. He is not a one-time hit and run kind of deal maker. Don't forget he buys below his perceived fair value, this selling at or a little below fair value still delivers him a strong profit. And if its win-win for both himself and the acquirer, well then he can count on future deal opportunities with that acquirer.

But back to your original question. Let's say theoretically Lilly is worth $40 at fair value as a buyout candidate, yet I can buy it today at $11. Now let's say I can wait for who knows how long for the $40 to be realized as the market price, OR I can push for a quick sale at $30. Or maybe even just at $25. I'll take the quick sale over waiting. The quick sale is done quickly, and the risk is off the table, the return is realized, and you can deploy the capital into a new opportunity. But if rather I hold, waiting for the market to realize fair value of Lilly, risking negative surprises, more health issues with their drugs, etc, then I am leaving myself exposed to an element of risk and a longer investment horizon, dragging down my IRR.

Thus I think in this situation, from the perspective of a NEW investor, one must think in terms of risk-adjusted returns and IRR. On that basis, for AMLN I'll take $25 tomorrow over a potential $40 in one to two years. I do think AMLN likely has a great long term story. But a bird in the hand is worth two in the bush.

Amylin: A Discounted Option on Byetta's Outcome

Thanks for the comment. Please explain where I referred to AMLN management as something opposite to the claim you have made. I can't find it.