Fresenius Buys Akorn -- What Now?

Dialysis giant Fresenius Medical Care AG (FMS 4.53%) has big expansion plans, and part of its strategy relies on bulking up its drug business. Recently, Fresenius announced it's acquiring Akorn Inc. (AKRX) for $4.3 billion. How does this deal help Fresenius execute on its plans?

In this clip from The Motley Fool's Industry Focus: Healthcare podcast, analyst Kristine Harjes and contributor Todd Campbell dig into the details of the deal and discuss what Akorn investors might want to do now.

Kristine Harjes: First, we wanted to give a quick answer for Shiraz, one of our listeners who is currently stationed in Tokyo, who wanted us to cover the Fresenius and Akorn deal. I hope that I'm saying that word right, Fresenius, which is a German healthcare giant. They acquired this smaller drugmaker called Akorn yesterday in a $4.3 billion deal.

Todd Campbell: Fresenius is very well known to many if you've driven by and seen their dialysis centers. It's a very large European company, but they get 70%-plus of their sales here in North America, and they get the bulk of all the revenue by providing these services to dialysis patients. What we're seeing them do recently in the last year or so, they have a new CEO in place who's very focused on diversifying out his revenue streams. Specifically, he wants to bulk up on his exposure to medicine. As part of that, he has agreed to spend $4.3 billion on Akorn, plus assumed debt. That works out to about $34 a share.

Harjes: Right. There a couple different reasons why they're doing this. As you mentioned, this is a company that's looking to expand. They've had a bunch of different deals around Europe, and this buyout will actually expand their geographical footprint within the U.S. as well, particularly because it gives them access to Akorn's distribution channels. The deal is supposed to be accretive to net income by 2018. This has been really good news for Akorn shareholders.

Campbell: Yeah, there's a huge pop in shares because this was a nice, big, fat premium. One of the things that always comes up when you talk about deals like this is, do you think there could be another suitor that could emerge? Should I stay in my Akorn shares, or should I sell them? You have to realize that this is an international company buying Akorn; there's going to be some review that needs to occur from a regulatory perspective. The deal probably won't close until 2018. Personally, who knows if somebody else steps up and tries to make a counter-bid? I don't think the odds are necessarily high for that, and I tend to always advise people to say no. Usually, it's dead money. This is not a stock deal. I think Fresenius said they're going to finance it by taking on some debt. It's not like you're going to hang on and eventually get the Fresenius shares, it doesn't sound like, to me, reading through the press releases. I think your money is probably best used somewhere else because of the opportunity cost.

Harjes: Right. There could potentially be some triage opportunity, I think shares today are a little bit over $33. But that's not worth it to wait until 2018, to gain less than $1 per share. So the way that I see this, I agree with you, Todd, I don't think anyone else is going to swoop in here. There has been speculation about this deal for quite a while. And actually, the majority of the pop in the stock happened when the rumors were leaked, rather than the confirmation, which came out yesterday. I don't see somebody else stepping in here and making an even bigger offer. If that does happen, I will be quite surprised. If I were a shareholder, I would probably just collect my cash now and exit, put your money to work elsewhere.

Campbell: It's probably a better bet, Kristine, to take a look at Fresenius shares. That's a company that's growing high single digits on the top line and the bottom line. Obviously, it's being run by someone who is expansion focused, focused on growing the company. Usually, these foreign companies fly a little bit underneath the radar for investors. So sometimes there can be opportunities in looking at these companies that are a little bit more underfollowed than some of the big names that we're more familiar with in the U.S.

Harjes: Right, plus you get that international diversification, which is helpful if you want to be fully diversified.