Aspen Investment Said To Be Offering $640 Million For Vivus

| About: Vivus, Inc. (VVUS)
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Aspen disclosed a stake that is already almost 10% (in options and forward contracts).

Vivus stock was up over 10% in morning trading.

The offer represents a stock price of $6.19 - a 25% premium over current trading.

Vivus (NASDAQ:VVUS) is the subject of a buyout rumor this morning that appears to have more legs than the rumor that surfaced about Arena Pharmaceuticals (NASDAQ:ARNA) last week. It is being reported that Aspen Investments, which could have an almost 10% stake in Vivus already, is set to offer $640 million for Vivus. It is said that the offer will be conditional and non-binding. It is anticipated that the offer will be submitted to the Vivus Board of Directors by June 13, 2014.

There are several things here for investors to consider. First and foremost is that an offer has not yet been made. At the moment, all that we have for information is that Aspen Investment is considering the submission of an offer. Between now and June 13th, a lot can happen.

It is also interesting to note that Aspen made its intentions public this early. Essentially, the move is now being telegraphed for the street to see. Perhaps this is by design. Aspen Investment would clearly be paying a premium over current prices and wants to assess the attitude of the street about the prospects of a buyout, or to see if there are perhaps other interested parties out there that can be brought to light.

In an SEC filing, we learn that Aspen does not really have Vivus shares, but rather options to buy them and Forward Purchase Contracts. This sheds a little more light onto the situation. Options July 2014 on 3,850,000 shares cost a mere fraction of holding the actual shares. Forward Purchase Contracts on 6,117,245 shares are simply a contract to buy a certain amount of shares at a certain price within a certain time-frame. The Aspen Forward Purchase Contracts expire a year from now. Interestingly, the options could very well have seen a nice little spike with this news. What we have at the moment is a small bet placed on Vivus that looks like a big bet.

If the speculation above is not enough, the timing falls in line with pending news about anti-obesity sector competitor Orexigen (NASDAQ:OREX). Orexigen is expecting a decision regarding its drug Contrave on June 10th. This would give Aspen a few days to consider the Orexigen news (approval or rejection) prior to its June 13th deadline.

The Vivus anti-obesity drug Qsymia has seen very flat sales throughout 2014, and does not seem to be gaining any traction. Competitor Arena Pharmaceuticals, with marketing partner Eisai (OTCPK:ESALY), has been aggressive in the space, and after just under a year, Belviq has caught up to Qsymia in weekly scripts. Vivus and Qsymia had a 9-month head start on Belviq.

Vivus also has an erectile dysfunction drug, Stendra. Stendra's sales appear to be promising, but details on how much revenue Vivus realizes from the sales are still foggy. Stendra has had a better launch trajectory than Qsymia.

For long-term investors in Vivus, a $6.19 buyout may be disappointing compared to some of the prices this stock has spent time at in the past. The issue here is that sales in the anti-obesity sector have not come anywhere close to projections, and the space is getting more crowded. Vivus was never able to identify and find a partner for Qsymia.

What investors need to do at this point is assess how they feel about an offer that is in the $6 per share range. Even as I write this article, the stock has sold off from a high of the day at $5.44. At the moment, the equity is at $4.85. It would appear that the street is not placing much faith in the buyout, or perhaps short traders jumped in on the spike and have now taken the equity down. Average volume on Vivus stock is 3 million shares, and just over an hour into the session, the volume today is approaching 10 million shares.

The bottom line is this. Is Vivus worth staying in with the hopes of getting an offer in the $6 range? In my opinion, $6 would be welcomed by many at this point, but a bird in the hand is worth two in the bush. It is clear that Vivus has not had a success in the anti-obesity space. This could mean that all hopes rest on Stendra. While Stendra appears to be off to a decent start, the revenue that Vivus will garner seems to be lower than what it would take to make Vivus a billion-dollar company. The bottom line is this. If I were a shareholder and was offered $6 for my shares, I would jump at the chance to accept, even if my entry price was double or triple that level. Take what you can get and find another company to invest in. You can always keep an eye on Vivus to see if new ownership can change the current dynamics or if there is even a chance at new ownership. Nothing about sales of Qsymia or Stendra will drive this equity up in a substantial manner just yet.

Disclosure: I am long ARNA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I have no position in Vivus, Eisai, or Orexigen

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.