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Why Patheon Shares Skyrocketed

Brian Pacampara, CFA | November 19, 2013| More on:

Although we don’t believe in timing the market or panicking over market movements, we do like to keep an eye on big changes — just in case they’re material to our investing thesis.

What: Shares of Patheon (TSX: PTI) soared 62% today after Dutch health care company Royal DSM partnered up with hedge fund JLL Partners to take the contract drug maker private.

So what: The all-cash deal values Patheon at $9.32 per share and represents a whopping 64% premium to yesterday’s close. Patheon is just the latest in a recent string of Canadian mid-cap health care companies to be taken private, suggesting that private equity firms and larger players see plenty of value in the space.

Now what: Patheon will be combined with DSM’s existing pharmaceutical products business, with the new entity expected to generate revenue of about $2 billion. “After a successful completion of the transaction, [the new company] will have an unmatched end-to-end offering from drug products to active substances,” said Royal DSM CFO Rolf-Dieter Schwalb in a conference call. So while Patheon shares are likely all popped out at this point, other mid-caps in the sector might be worth looking into for some healthy hidden value.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned.  The Motley Fool does not own any of the stocks mentioned at this time.

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