Grifols-Talecris Deal Makes Arbitragers See 60% Gain: Real M&A

Traders who bet on mergers are the most convinced since the offer was made in June that Grifols SA’s takeover of Talecris Biotherapeutics Holdings Corp. will be completed, giving speculators a chance for a 60 percent return.

Talecris, the Research Triangle Park, North Carolina-based maker of protein therapies derived from plasma, has traded this month within $3.40 of Grifols’s offer price, the smallest gap since it agreed to be acquired by the Spanish company, according to data compiled by Bloomberg. The $4.5 billion deal, expected to be completed June 30, would give investors an annualized profit of 60 percent based on Talecris’s April 8 price, the largest of any U.S. takeover closing after this week.

Investors have grown more bullish on Talecris since Grifols, Europe’s largest maker of blood-plasma products, extended the acquisition’s closing last month as it seeks antitrust approval. While the U.S. Federal Trade Commission blocked a 2009 takeover of Talecris by Australia’s CSL Ltd., Grifols (GRF) said last week it’s sure it will receive permission for the deal. Short sellers have also reduced bearish bets on Talecris, which is 49 percent owned by Cerberus Capital Management LP.

“There is a high level of confidence that they’re going to get approval any day,” said Peter Lobravico, New York-based vice president of merger arbitrage trading and sales at Wall Street Access. “I’m still taken aback as to why this has taken so long.”

Becky Levine, a spokeswoman for Talecris, declined to comment. Representatives for Grifols didn’t respond to requests for comment outside normal business hours.

Today’s Trading

Shares of Grifols climbed 2.5 percent to 12.86 euros in Madrid for the fifth-biggest gain in the Stoxx Europe 600 Index. Talecris rose 0.9 percent to $27.40 on the Nasdaq Stock Market.

Talecris has risen 71 percent since the acquisition was announced on June 7 through last week, while Grifols gained 35 percent, pushing the value of the deal to $4.5 billion including net debt, data compiled by Bloomberg show. The Barcelona, Spain-based company is paying $19 in cash and 0.6485 newly issued non-voting Grifols share for each Talecris share.

On April 5 the spread between Talecris’s stock price and the offer price reached $3.40, the narrowest since the acquisition was announced, data compiled by Bloomberg show. The shares closed at $27.15 on April 8, 12 percent below the $30.79-a-share deal price. If the transaction closes at that level on June 30, traders who buy the stock now would realize a 60 percent annualized return, the data show.

‘Bit More Optimistic’

“The Street has become a bit more optimistic of the deal closing just from how the Talecris stock has been trading,” said Hamed Khorsand, an analyst at BWS Financial Inc. in Woodland Hills, California.

The amount of short selling, or the practice of selling borrowed stock on the bet the price will decline, in Talecris fell to about 169,000 shares on April 5, according to Data Explorers, a New York-based research firm. That’s 92 percent less than the high of 2.17 million shares sold short on June 10, three days after the takeover was announced, the data showed.

Short sales of Grifols have decreased by 45 percent over the same span, according to Data Explorers.

Grifols is pursuing Talecris to expand its market share in the U.S., which accounted for about 34 percent of its global sales last year, according to data compiled by Bloomberg. Talecris sells Gamunex, a treatment for immune-system disorders, and Prolastin, a treatment for Alpha-1 antitrypsin deficiency, a condition that can lead to lung disease.

Antitrust Approval

Grifols, which originally forecast the deal would close in the fourth quarter of 2010, most recently extended the deadline to June 30 from March 6. Chairman and Chief Executive Officer Victor Grifols said last week he’s still optimistic the deal will be approved.

“I don’t know when we’ll receive the green light from the FTC,” Grifols said at an event at Madrid’s stock exchange. “I’m sure we’ll get it, but it’s a very long process.”

The company has pledged to give the FTC at least 30 days’ notice before closing. If the FTC blocks the deal, Grifols will have to pay Talecris a $375 million breakup fee.

“It’s more likely to be approved than not,” said Peter Sorrentino, who helps oversee $14.4 billion at Huntington Asset Advisors in Cincinnati. “The FTC seems to be willing to accept conditions on mergers.”

Talecris was created as an independent company in 2005 after Leverkusen, Germany-based Bayer AG sold its plasma business to Cerberus of New York and Ampersand Ventures in Wellesley, Massachusetts. Talecris raised almost $1.1 billion in a 2009 initial public offering.

‘Still Wary’

While Talecris traded at the closest on record to Grifols’s offer last week, the April 8 spread of $3.64 is still too wide to indicate traders are confident the takeover will be approved, according to Yemi Oshodi, managing director of M&A and special situations trading at New York-based WallachBeth Capital LLC.

“The CEO sounds quite optimistic that he’s going to get the deal done,” Oshodi said. “But the spread tells me arbs remain wary. Investors are still wary that there’s an issue at the FTC. This has taken an inordinate amount of time.”

The spread is also wider because the non-voting shares investors receive in the transaction will likely trade at a discount, Oshodi said.

Traders in the options market are also boosting their bearish bets on Talecris to the highest level since the company’s IPO. There were 3.86 outstanding puts to sell for each call to buy on April 8, data compiled by Bloomberg show.

That compares with a put-to-call ratio of 1.33 on March 4, the day that Grifols said it was extending the deadline for completing its takeover of Talecris to June 30.

Failed Deal

CSL (CSL)’s attempt to buy Talecris for $3.1 billion fell apart in June 2009 because of opposition from U.S. regulators. A successful bid would have helped CSL of Parkville, Australia, overtake Baxter International Inc. (BAX) as the leader in the global market for blood plasma-derived treatments such as immunoglobulin, used for patients with weakened immune systems.

The FTC said the deal would have left CSL and Deerfield, Illinois-based Baxter with 80 percent of the U.S. market for immunoglobulin and albumin.

Grifols’s takeover of Talecris won’t face the same scrutiny because its U.S. presence isn’t as large and the combined company won’t dominate the market, said BWS Financial’s Khorsand. Because the deal wasn’t immediately blocked, some investors are betting the extensions mean regulators will approve it, he said.

Combining Grifols’s $450 million in U.S. sales for its latest fiscal year with Talecris’s $1.1 billion would still be in line with CSL’s revenue of $1.5 billion in the Americas and less than Baxter’s $5.3 billion in the U.S., data compiled by Bloomberg show.

“With Grifols it’s a different story,” Khorsand said.

Overall, there have been 6,700 deals announced globally this year, totaling $670.8 billion, a 29 percent increase from the $521.4 billion in the same period in 2010, according to data compiled by Bloomberg.

To contact the reporter on this story: Tara Lachapelle in New York at tlachapelle@bloomberg.net;

To contact the editors responsible for this story: Daniel Hauck at dhauck1@bloomberg.net; Katherine Snyder at ksnyder@bloomberg.net.

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