Why Questcor Pharmaceuticals Inc. Shares Skyrocketed

Questcor shares soar after agreeing to be bought out, but that still may not be the end of this story.

Apr 7, 2014 at 12:55PM

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 Questcor Pharmaceuticals (NASDAQ:QCOR), a biopharmaceutical company focused on developing therapies to treat autoimmune and inflammatory disorders, skyrocketed as much as 32% after announcing this morning that it had agreed to be acquired by Mallinckrodt (NYSE:MNK).

So what: According to the terms of the deal, Mallinckrodt will divvy out $30 per share in cash and 0.897 Mallinckrodt shares in exchange for each share of Questcor. Furthermore, Mallinckrodt will also purchase unexpired Questcor stock options, bringing Questcor's total purchase price to approximately $5.6 billion, or a 27% premium to Friday's closing price. The deal, which is yet to be approved by either company's shareholders as of yet, would be immediately accretive to Mallinckrodt's 2014 earnings and would be significantly accretive thereafter.

Now what: Short-sellers in one of the most heavily short-sold stocks within the Nasdaq Composite just got their head thumped, plain and simple. The interesting thing, however, is that Questcor has backed well off its buyout price and is now trading at close to 10% below that level as of this writing. Part of that could be the double-digit decline in Mallinckrodt shares, but it also tells me that short-sellers believe the deal will either be voted down by Mallinckrodt shareholders, or that the ongoing investigation into the marketing of Acthar Gel by the Food and Drug Administration could throw a monkey wrench into the deal. Questcor's profits and cash flow have never been much of a question, but its lack of diversity -- one approved drug for 19 indications -- has always bothered me just in case something bad did happen to Acthar. As such, despite the arbitrage opportunity, I personally see far too much downside risk and too little upside reward to consider investing in Questcor here.

Questcor shares are soaring today, but even it could ultimately struggle to keep up with this top stock in 2014
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool has no position in any companies mentioned in this article. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information