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Ramius LLC considering next move in SurModics turnaround

|Includes:SurModics, Inc. (SRDX)

Your move, Ramius.

The alternative investment firm and activist shareholder purchased a 12 percent stake in SurModics Inc. (NASDAQ:SRDX) because it saw a clear opportunity to boost the stock and turn a nice profit. In its quest to name three people to the SurModics board, Ramius said it did not want to break up the company or replace the board.

That may no longer be the case.

Earlier this week, SurModics named former Arizant Inc. CEO Gary R. Maharaj as its top executive after pushing out Bruce Barclay in June. More importantly, Surmodics, based in Eden Prairie, Minnesota, said it hired Minneapolis investment bank Piper Jaffray & C0. to explore the sale of its pharma unit.

So how will the investment firm respond? I can’t imagine it’s too pleased. Ramius said it wanted to help choose the next SurModics CEO. SurModics lacked a permanent leader for six months and then named one just a few days after Ramius filed its proxy statement? That’s one heck of a coincidence.

A potential sale of SurModics’ drug business poses a trickier question for Ramius. Ridding pharmaceuticals unquestionably saves SurModics much-needed cash. Ernest Andberg, an analyst with Feltl & Co. in Minneapolis, estimates the company’s new $40 million plant in Alabama requires $10 million a year to run.

Since SurModics said it would explore a sale Tuesday, the company’s stock soared about 20 percent to $12.40 before falling back to $11.50. Andberg thinks Wall Street has now fully priced the value of a potential sale into SurModics stock.

SurModics stock closed at $9.03 per share on November 11, the day Ramius purchased two million shares, according to documents filed with the Securities and Exchange Commission. If Ramius elects to sell now, the firm could walk away with a $5 million profit.

Here’s the big question: is there a reason for Ramius to hang onto its shares? That depends on whether Ramius thinks it can wring more value out of SurModics. With pharma out of the picture, the only way Ramius can push SurModics stock to, say, $20 a share in the immediate future is an outright sale of the company, Andberg believes.

But for Ramius to do that, the firm may have to replace SurModics’ board, which probably would resist selling the company.

Sell or attack? Decisions, decisions.

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