SCENARIOS-Will Grifols get green light for Talecris deal?

http://www.reuters.com/article/2011/01/27/grifols-talecris-idUSLDE70Q1EF20110127?sp=true


Jan 27 (Reuters) - Spain's Grifols (GRLS.MC) wants to close its $4 billion bid for peer Talecris (TLCR.O) next month, but the deal to create the world's third-largest player in blood-derived products still needs U.S. regulatory approval.

Grifols agreed to buy Talecris last year to help boost market share in the United States and Canada and strengthen its position versus rivals such as Baxter International (BAX.N) and Australia's CSL (CSL.AX).[ID:nLDE6560AA]

These firms make treatments derived from donated blood plasma used to treat a range of conditions, including haemophilia and immune system deficiencies.

The U.S. Federal Trade Commission (FTC) is set to make a decision soon. What are the chances of the FTC approving the deal, and how would different FTC rulings affect Grifols' share price?


FTC CLEARS TAKEOVER WITH CONDITIONS

Probability: High

The majority of experts think the FTC will approve the deal with conditions, most likely in the form of disposals, a decision which Grifols has indicated it would take on board.

"We like the deal how we conceived it, but considering annual margin and synergy potential, we can change the initial structure of the deal and it'd still be profitable," Grifols' finance subdirector Nuria Pascual told Reuters in an interview.

In a research note on Thursday, UBS said: "In our view it is quite possible that Grifols may have to give away part of production, for instance the Melville plant or IVIG distribution."

Market experts believe a green light with reasonable remedies would have a positive impact on Grifols' shares. One analyst in Spain predicted a market value of at least 13.5 euros, compared to Wednesday's closing price of 11.24 euros.


FTC CLEARS TAKEOVER WITHOUT CONDITIONS

Probability: medium

Grifols says the combined U.S. market share of the three main blood plasma players -- Baxter (BAX.N), CSL (CSL.AX) and Talecris -- would only rise 5 percentage points to 75 percent if the deal were cleared, given Grifols' low presence in that market.

But this argument may not be enough to convince the FTC that the deal can go condition-free. Talecris has 13.4 percent of the U.S. market, behind U.S. firm Baxter with 36.4 percent and Australia's CSL with 19.5.

If the deal is unconditionally cleared, Grifols' shares would climb above 14 euros, market experts say.


FTC CLEARS TAKEOVER WITH HARSH CONDITIONS

Probability: medium

Such a ruling would effectively be the same as a rejection. If the FTC were to seek whole raft of disposals this would not make the deal worthwhile.

Grifols would have to pay Talecris a $375 million break-up fee, nearly double the Spanish firm's net profit in 2009, as well as cover financing costs related to its planned takeover.

Grifols has a $3.4 billion financing agreement in place and has already issued $1.1 billion in U.S. bonds to fund the deal. [ID:nLDE70C0HF]

Clearance with harsh conditions would have a very negative impact on Grifols' shares, analysts say.


FTC REJECTS THE TAKEOVER

Probability: low

The FTC rejected CSL's attempt to takeover Talecris two years ago. The rejection is still fresh in investors' minds, but that deal would have left only two dominant players in the market -- Baxter and the combined CSL-Talecris -- with a total market share of 70 percent.

Still, if the deal were rejected Grifols would have to pay the $375 million break-up fee.

"If the deal is rejected, Grifols' shares are worth 9.8 euros (considering the break-up fee and other costs), plus the discount decided by the market, which could be about 15 percent (or 8.4 euros)," said a Spanish bank analyst who asked not to be named.


(Editing by Jane Merriman)

 

Interesting.....very detailed information and savvy predictions. When will the FTC decide? You must be somehow connected to the industry...

 

http://www.reuters.com/article/2011/02/04/grifols-talecris-idUSLDE7131CV20110204

Looks like March 6 is the decision date.