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Post by pat on Apr 12, 2019 11:03:37 GMT -5
A company buys another company for an agreed upon value.
The buying company must deliver that value to the existing shareholders of the company being bought.
The most straightforward way is to deliver currency.
In theory they could deliver cows. Or the promise of future services to be provided.
A common approach is to deliver equity shares of their own company. Those shares represent a claim on assets less liabilities and the future earnings on that asset base. Investors put a value on those claims in real-time everyday via equity bourses.
All things being equal the whole transaction should be a wash. Acquirer issues new shares. Assumes control of assets/liabilities of company being bought. Real time value of equity shares remains little changed once the transaction closes. Reason being the larger equity of the combined company now represents a claim on a larger asset/liability net and larger future earnings stream.
The isn’t reality for many reasons. Most companies overpay for acquisitions. Senior management is human and gets excited. There is a lot of uncertainty on whether the transaction will close - including regulatory risk. Also markets are not always efficient at pricing risk MNKD :-( ).
Risk arbiteurs often profit from this market friction, placing bets accordingly.
My point being - don’t think of it as shares for shares. Think of it in terms of market value. What will we get for the entire company? $1B? $2B?
That will ultimately determine the amount of equity we get in the new combined company.
Anyway hope this helps.
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Post by ktim on Apr 12, 2019 12:29:18 GMT -5
Ross, I concur, but let’s say we get half cash and half shares in Roche, if you left your options alone ( let’s say they’re leaps ) and your MNKD options get turned into Roche options ( you’re hoping you Roche options go up ) can keep them and sell them before they expire correct? That way you don’t have as many tax consequences if you’ve held them over a year. Or let’s say it was a all share deal. Because in the scenario I laid out it wouldn’t make any sense to do that I just realized . Sports, so let's say a deal is made with Roche and it's an all share deal, what would you expect the deal to look like? 1:1, 2R:1M ? Right now it would be one Roche ADR per 19 MNKD shares at no premium. Maybe improve that by a factor of 2 if considering a generous outcome within a nine month time frame.
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Post by ktim on Apr 12, 2019 12:44:10 GMT -5
A company buys another company for an agreed upon value. The buying company must deliver that value to the existing shareholders of the company being bought. The most straightforward way is to deliver currency. In theory they could deliver cows. Or the promise of future services to be provided. A common approach is to deliver equity shares of their own company. Those shares represent a claim on assets less liabilities and the future earnings on that asset base. Investors put a value on those claims in real-time everyday via equity bourses. All things being equal the whole transaction should be a wash. Acquirer issues new shares. Assumes control of assets/liabilities of company being bought. Real time value of equity shares remains little changed once the transaction closes. Reason being the larger equity of the combined company now represents a claim on a larger asset/liability net and larger future earnings stream. The isn’t reality for many reasons. Most companies overpay for acquisitions. Senior management is human and gets excited. There is a lot of uncertainty on whether the transaction will close - including regulatory risk. Also markets are not always efficient at pricing risk MNKD :-( ). Risk arbiteurs often profit from this market friction, placing bets accordingly. My point being - don’t think of it as shares for shares. Think of it in terms of market value. What will we get for the entire company? $1B? $2B? That will ultimately determine the amount of equity we get in the new combined company. Anyway hope this helps. I think your characterization of how valuations "should" be done for acquisitions misses some very real factors. Not every company that pays a premium for shares is overpaying. Sometimes in business 1+1 does equal more than two. Of course sometimes 1+1 doesn't even amount to as much as 2. The right acquisition partner might pay much more for shares and not be overpriced, compared to a poor match as an acquirer might be stupid to even pay existing market price for shares, much less an inflated number. Depends on things like whether there is market synergy, whether there are potential cost savings and whether the acquiring company has processes and track record of executing integrations well. Some premiums paid might certainly be an acquirers' management getting excited or indulging in other emotional faults like desiring trophy acquisitions, but in many other cases premiums make sense. That said, realistic premiums aren't factors of 10x when you are talking about market caps the size of MNKD. An acquirer has to contend with justifying premiums to their existing shareholders.
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Post by sportsrancho on Apr 12, 2019 13:33:38 GMT -5
Ross, I concur, but let’s say we get half cash and half shares in Roche, if you left your options alone ( let’s say they’re leaps ) and your MNKD options get turned into Roche options ( you’re hoping you Roche options go up ) can keep them and sell them before they expire correct? That way you don’t have as many tax consequences if you’ve held them over a year. Or let’s say it was a all share deal. Because in the scenario I laid out it wouldn’t make any sense to do that I just realized . Sports, so let's say a deal is made with Roche and it's an all share deal, what would you expect the deal to look like? 1:1, 2R:1M ? Not sure, between 1-3b... I really can’t even make an educated guess since it’s above my pay grade, but I can tell you that you never get what you think your house is worth, you get with the buyers willing to pay, and I think there would be a lot of mad people if that happened. And personally it’s not what I think is going to happen.
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Post by jred on Apr 12, 2019 14:57:10 GMT -5
Setting aside the question of whether you should be trading options if you don’t know the answer to that question 🙈 in the event of a BO, price will jump when announced (long before deal complete) and you can sell them or exercise then. Ross, I concur, but let’s say we get half cash and half shares in Roche, if you left your options alone ( let’s say they’re leaps ) and your MNKD options get turned into Roche options ( you’re hoping you Roche options go up ) can keep them and sell them before they expire correct? That way you don’t have as many tax consequences if you’ve held them over a year. Or let’s say it was a all share deal. Because in the scenario I laid out it wouldn’t make any sense to do that I just realized . sportsrancho I believe in both of your scenarios you would get to use the long-term capital gains rate as long as the holding period was over a year and the option was sold before expiration.
Another issue to be aware of with the MNKD options in a BO is the potential drop in volatility used in pricing the options. In an all cash deal (not factoring in deal completion risk) the options will trade primarily only based on their intrinsic value. So say you buy the Jan21 $3.50 strike calls for $.50 (approx current value) and Mannkind agrees to an all cash deal with Roche for $4.00 per share - a hefty and unlikely premium to the current price (currently $1.70) - the Jan21 3.50's will trade for right around $.50 - leaving no profit. If you bought the Jan21 $4 calls you would likely lose the entire cost of the option.
In terms of the option pricing, an all stock deal is better because it avoids the zero volatility repricing. But going forward the options are priced based on the expected volatility of the buyer (Roche in our example). And since any stock buyer will likely have a volatility significantly lower than Mannkind's (currently approx 100) it can really eat into expected profits.
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Post by pat on Apr 12, 2019 16:17:58 GMT -5
Ktim. Much like mike k,, a lot of words with little substance.
“synergy” is a sales pitch. A buzz word.
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Post by ktim on Apr 12, 2019 17:33:40 GMT -5
Ktim. Much like mike k,, a lot of words with little substance. “synergy” is a sales pitch. A buzz word. Ouch, comparing me to MK, that stings. There have been plenty of great acquisitions that have resulted in increased value because of synergy. Tons in tech, though many were smaller acquisitions that people would not likely know. I might throw out two pretty well known acquisitions by Google that I think are substantive examples of such: Youtube and Android. In the case of Youtube, I think pairing with Google has driven people to Youtube content at higher rate than would otherwise have been the case. In the case of Android, I think the technology has been monetized in an entirely different way than the tiny Android Inc could have done on their own. Android Inc could have fought against the establishment players trying to compete for a mobile operating system, but I suspect they might have struggled for years trying to do that, if ever succeeding. By joining with Google and making Android OS open source and not charging phone makers, it blew past many other competitors. That was only possible because Google had other means of monetizing the shift to mobile. The $50 million Google paid for the small company is now worth ten times that much if shares were retained, not counting probably a lot more in employee stock compensation for those that stayed with Google. Getting to market quicker with a mobile phone OS and dominating the segment (yes there are many more Androids than Apple phones) makes that $50 million investment look like genius. Synergy anyone? That sort of thing does happen often. These examples are good because they weren't merged to the point of loosing their identity within the acquiring company so it's easier to point out their contribution beyond acquisition. I'm guessing maybe you've been burned by acquisitions. I've certainly experienced that as well, even at a large company where I worked with an acquisition that ended up being the extreme opposite of synergy, causing harm to shareholders and employees.
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Post by pat on Apr 13, 2019 5:59:59 GMT -5
More often than not the ‘value proposition’ of an acquisition is not ultimately recognized. Admittedly I have no data to support this. But I believe most finance scholars would say the same.
Synergy is a fancy way of saying you’ve got two people doing the same job and can fire one. Or you can sell new products into your clients. These impacts are always exaggerated.
We as MNKD shareholders will make the most money in the long run if MC can monetize affrezza and technosohere for us with a minimum of future dilution.
We will make less money if he sells a piece - or all - of affrezza.
We will make less money still if he sells the company.
But whatever he does we make a lot of money. It’s the difference between a 10% annualized return for the past 15 years as opposed to generational wealth.
I continue to leverage up via options and hope for generational wealth.
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Post by ktim on Apr 13, 2019 15:34:20 GMT -5
More often than not the ‘value proposition’ of an acquisition is not ultimately recognized. Admittedly I have no data to support this. But I believe most finance scholars would say the same. Synergy is a fancy way of saying you’ve got two people doing the same job and can fire one. Or you can sell new products into your clients. These impacts are always exaggerated. We as MNKD shareholders will make the most money in the long run if MC can monetize affrezza and technosohere for us with a minimum of future dilution. We will make less money if he sells a piece - or all - of affrezza. We will make less money still if he sells the company. But whatever he does we make a lot of money. It’s the difference between a 10% annualized return for the past 15 years as opposed to generational wealth. I continue to leverage up via options and hope for generational wealth. I think the failure rate is higher with the large M&As that may catch headlines. I also have no specific data on overall success. I presume it would take a lot of work to collect that data as in many acquisitions the acquired assets/employees may melt into the larger organization where tracking the contribution wouldn't be easy and you don't have the control situation of what would have happened otherwise with the two separate entities. Bear in mind using Google again as an example, they have acquired hundreds of companies over the years. I'd put my money on most of those having paid off in major ways for Google. But that's just me speculating as you're doing. Specific to MNKD, I think the synergy being suggested by some is that larger companies with better balance sheets would have access to the capital needed to make Afrezza a success on much better terms than MNKD. I'd be happy with break even on my investment but certainly with you in desire for much greater.
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Post by bigchungus91354 on Apr 15, 2019 10:45:58 GMT -5
biased chart, if we keep falling and sink the 1.60 warrants, I'll have to change my vote to .99-1.49
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Post by awesomo on Apr 15, 2019 14:14:38 GMT -5
Well, we're at the 1.60 warrant level with no positive momentum at all.
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Post by factspls88 on Apr 15, 2019 14:42:43 GMT -5
So tired of this.
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Post by bones1026 on Apr 15, 2019 14:44:59 GMT -5
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Post by cretin11 on Apr 15, 2019 14:48:13 GMT -5
Add event if you like that warrant your selection Why didn't poll include under $1.50 as a choice?
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Post by traderdennis on Apr 15, 2019 18:23:56 GMT -5
Add event if you like that warrant your selection Why didn't poll include under $1.50 as a choice? biru the head in the sand syndromes
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