Why Conceptus Shares Skyrocketed

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Conceptus (NASDAQ: CPTS  ) , a maker of minimally invasive contraceptive devices for women, soared 20% after the company agreed to be purchased by Bayer (NASDAQOTH: BAYRY  ) for $1.1 billion.

So what: The deal, which represents a 20% premium from Conceptus' closing price on Friday, is for $31 per share in cash and values Conceptus at a whopping 30 times this year's EBITDA! The move does make sense as Bayer was able to generate more than $4 billion from its women's health care business last year, and it already has a lineup of contraceptive pills and devices in its product portfolio.

Now what: It's a great day to be a Conceptus shareholder, but I can't help but feel that Bayer is paying far too high a premium for Conceptus. In November I made an underperform call on Conceptus in CAPS -- a call which puts egg all over my face for sure -- on the idea that it was trading at an astronomical forward P/E and had much of its revenue tied to Europe. Bayer might be further securing its dominance in women's contraceptive care, but I feel it made a poor choice in paying such a high premium for Conceptus.

Craving more input? Start by adding Conceptus to your free and personalized watchlist so you can keep up on the latest news with the company.

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