PPDI Should Acquire PRXL 17-Sep-09 07:48

I noticed that neither PPDI nor PRXL are presenting at the upcoming huge UBS healthcare conference next week. They always have in the past. That got me thinking: PPDI should acquire PRXL. The numbers are compelling....

Stock deal: PPDI could pay a 25% premium or $17.75 a share and the deal would be about 15C accretive to 2010 EPS. Assumptions: 5% revenue cannibalization, 2% reduction in operating costs through synergies (seems conservative), 5% reduction in combined SG&A expense (might be conservative).

Cash deal: PPDI could pay a 25% premium and the deal would be about 40C accretive to 2010 EPS. Assumptions: the same as above in terms of cannibalization and synergies. Also, the deal would cost about $1.01 billion. PPDI is currently sitting on $670 million, so at least half the deal could be financed through cash on hand that is currently earning next to nothing. I assume 6.4% interest expense on the balance.

Perhaps the optimal terms would be a hybrid deal of half cash and half stock. That way, PPD would not have to borrow a penny to do the deal, and it would still be about 27C accretive. Even with PPD currently trading at a depressed P/E of about 10 times (excluding cash on the balance sheet), that would add about $2.70 to the stock price. I think, though, that it could add much more to the price given the compelling nature of the deal. It would bring PPD more management talent. It would increase the scale of the company to better compete with the likes of CVD; combined company would have about $2.9 billion in revenue v. CVD's $2.1 billion.

I think this would be a deal made in heaven. Thoughts?