European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<p>On 26 May, British pharmaceutical group <a href="https://www.smartkarma.com/entities/vectura-group-plc" target="_blank" data-smartkarma-citation="entities:22201:1" rel="noopener">Vectura (VEC LN)</a> Group plc, which specializes in inhaled medicines, has agreed to be acquired by Carlyle by means of a scheme of arrangement. Vectura shareholders will receive <strong>136p in cash and a 19p interim cash dividend (record date 28 May)</strong> for each share, a total of 155p.</p>
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<p>For an implied equity value of £833.66 mn, and an implied EV of £759.3 mn.</p>
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<p>This represents 4.4x EV/Fwd revenue, 14.7x EV/Fwd EBITDA and 27.4x Fwd P/E.</p>
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<li>The dividend is funded by the after tax GSK litigation proceeds received.</li>
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<p>Vectura is in the midst of transitioning to CMDO. While the firm seems good value, there is some execution risk on the transition to CDMO.</p>
<p>My <strong>WACC </strong>estimate for Vectura is <strong>4.2%</strong> vs. a <strong>ROIC</strong> (calculated at YE 2020) <strong>of 1.8%</strong>. This means that the company earns returns that do not match up to its cost of capital. It <strong>destroys value as it grows</strong>. Here is where Carlyle will have to work its magic.</p>
<p>My TP is 145p (comps based) vs. the median Capital IQ consensus TP of 135p. The offer represents a <strong>fair premium</strong> to the prior day closing price and and I see a counterbid as unlikely. I would expect investors to support the offer, but market reaction implies that the offer will probably have to be sweetened.</p>
<p>The share price of Vecture closed at 162.2p, a 33% increase vs. the prior trading session, with a volume of c. £36 mn. <strong>Gross spread is (4.6%) to the total consideration</strong> and 1.1% to my TP. Recommendation is <strong>long VEC LN, TP 164</strong> (downside risk seems limited).</p>
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On 26 May, British pharmaceutical group Vectura (VEC LN) Group plc, which specializes in inhaled medicines, has agreed to be acquired by Carlyle by means of a scheme of arrangement. Vectura shareholders will receive 136p in cash and a 19p interim cash dividend (record date 28 May) for each share, a total of 155p.


For an implied equity value of £833.66 mn, and an implied EV of £759.3 mn.


This represents 4.4x EV/Fwd revenue, 14.7x EV/Fwd EBITDA and 27.4x Fwd P/E.

The dividend is funded by the after tax GSK litigation proceeds received.

Vectura is in the midst of transitioning to CMDO. While the firm seems good value, there is some execution risk on the transition to CDMO.
My WACC estimate for Vectura is 4.2% vs. a ROIC (calculated at YE 2020) of 1.8%. This means that the company earns returns that do not match up to its cost of capital. It destroys value as it grows. Here is where Carlyle will have to work its magic.
My TP is 145p (comps based) vs. the median Capital IQ consensus TP of 135p. The offer represents a fair premium to the prior day closing price and and I see a counterbid as unlikely. I would expect investors to support the offer, but market reaction implies that the offer will probably have to be sweetened.
The share price of Vecture closed at 162.2p, a 33% increase vs. the prior trading session, with a volume of c. £36 mn. Gross spread is (4.6%) to the total consideration and 1.1% to my TP. Recommendation is long VEC LN, TP 164 (downside risk seems limited).






















Carlyle/Vectura Group: Expectations of a Sweetened Bid

United Kingdom

Vectura Group plc is a British pharmaceuticals company that specializes in the development of inhaled medicines and inhaler devices for treating respiratory diseases such as asthma and chronic obstructive pulmonary disease (COPD). It operates as a contract development and manufacturing organization (CDMO), offering formulation, device design, and development capabilities to help other companies bring inhaled therapies to market. The company was founded in 1997 and is headquartered in Chippenham, England, UK.

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Vectura Group (VEC LN)

Carlyle/Vectura Group: Expectations of a Sweetened Bid

Vectura destroyed value as it grew. Offer is a fair premium to median Cap IQ cons. TP 135p. The offer will probably be sweetened. Gross spread is...

Jesus Rodriguez Aguilar

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