Are all buyout offers a good deal for shareholders? On Tuesday shares of drugmaker Bradley Pharmaceuticals
The offer values Bradley at $21.50 a share. The stock is already trading nearly a dollar over the offer price after the offer was made, meaning shareholders either believe the company is worth more than that or hope that a better offer is on its way.
I've always thought it odd that a CEO or any part of a company's management team could be allowed to bid on the company they were running. After all, they'd have a vested interest and ability to sink the value of the stock before the buyout to make the cost of acquiring the company as cheap as possible.
Shares of Bradley are trading at 31 times its trailing-twelve-month earnings per share, which appears neither particularly cheap nor expensive. Could future positive developments be around the corner that might make shares of Bradley appear much cheaper at today's prices? We may never know. In the take-private offer Glassman repeatedly talked about getting the offer done "very quickly" and "on an accelerated basis." This makes me wonder why he's in such a hurry to get the deal consummated.
Normally you would think that a CEO would want to cover all his bases in terms of finding other suitable buyers and possibly sparking a bidding war for the company. Investors shouldn't hold their breath for this to happen since Glassman controls the makeup of the board of directors via his majority holding of the class B shares (which elect a majority of the board members).
Bradley's board of directors will form a special committee, though, to see if other buyers or "strategic alternatives" are available -- but who knows how hard the independent directors will search for another acquirer. Also consider that just because Bradley may not be a strategic fit with another pharma, that doesn't mean the buyout is at fair price. The shareholder litigation sharks may be starting to circle; one law firm has already asked shareholders to contact it if they want to be "advised of their rights" about the proposed buyout.
Bradley's CEO doesn't appear to have done anything improper in his time running the company, but I'm very wary of management-led buyouts.
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