Markets remain nervous as Greek deadline approaches with little progressInvestors continued to be nervous about Greece’s precarious financial situation, with an agreement between the cash-strapped country and its creditors seemingly as far away as ever, despite the deadline for a deal rapidly approaching.But a spate of takeover speculation proved a welcome distraction from the never-ending eurozone crisis.In theory, the deal would add a further growth engine within Shire’s core rare diseases focus area, along with a late-stage pipeline in infectious disease and multiple sclerosis. Shire could also leverage Zavesca (oral Gaucher treatment; marketed) and pipeline drug lucerastat (oral Fabry treatment) through its existing sales force selling Vpriv/Replagal. While direct synergies with Actelion’s PAH sales and marketing capability are unlikely to be material, we would expect Shire to be able to extract meaningful corporate overhead savings, as well as absorbing R&D spend within its budget.Given the size of the transaction suggested in the [Sunday Times] story, we would expect any deal to require a mix of cash and equity. As a reminder, Shire had net debt of $2.6bn at the end of the first quarter of 2015 and has shareholder approval to increase this to $12bn if required. Assuming a 50:50 cash/equity deal, a 4.5% cost of debt, and achievement of savings/synergies equivalent to 30% of Actelion’s R&D and [expenses], we believe the deal could be accretive to..earnings per share in the high single digits within 3 years and ultimately reach double digits. However, with significant upside to our Actelion forecasts/valuation if Uptravi sales exceed expectations, we believe a 30% plus premium may be required to secure a deal. This would moderately erode earnings accretion potential and require issuance of a greater proportion of equity.European markets have continued where they left off at the end of last week, as rising bond yields and the continued impasse over a new Greece deal keep investors cautious.Since the October lows [Germany’s] Dax is still up over 20% so some type of pullback was eventually likely to take place, and it looks like we are seeing that correction from the highs in April continue to play out, as the German benchmark moves more than 10% away from its recent highs and into correction territory.Over the last month Tui hosted a Capital Markets Day which promised several avenues for future growth: it is now time for the newly combined Tui group to start to deliver on these promises. If the company successfully delivers against these targets, we think it will provide investors with strong earnings per share growth and optionality over the next four years. Continue reading...
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