Tuesday, July 26, 2005

Hit #56

Ivax (IVX) is being bought by Teva for $7.4 billion, valuing Ivax shares at $26/share. Shareholders can opt for cash or equivalent number of Teva shares. I will likely go for cash if that option is available, mostly because I need to pay some bills. Teva shares represent value at current prices and there is more room for growth, since Teva is regaining its leading position in generics with this purchase.

This acquisition was a reaction to the earlier Novartis/Eon Labs transaction, on which I posted here. I guessed that Teva will go hunting soon, but got the target wrong. I believe there is more coming in this sector, with Mylan (MYL), Forest Labs (FRX), Watson Pharma (WPI), Taro (TARO), Barr Labs (BRL) representing the stronger/sound value plays and Alpharma (ALO), Andrx (ADRX) and Par (PRX) representing weaker/speculative buys. I have been looking at all of them and buying on any significant pullback. Most of these are worth accumulating at current prices.

I have been buying Ivax regularly ever since insider buying showed up last year. My average price, spread across 2 portfolios - my own and another one I am managing for a friend - is $16.02/share and this takeover price is a 62% premium over that price.

Ivax is among the few stocks that I continued to buy even as it went up, mostly because insiders were doing the same. While this definitely moved up my average cost and hence reduced the percentage premium, the absolute gains increased. Additionally, I was also reducing the overall risk associated with this holding, since continued insider buying while the stock is going up is a very bullish sign.

An interesting fallout of this buyout could be the fate of Ivax Diagnostics (IVD), a company that is majority owned by Ivax. I expect Teva to cash out by selling its (acquired) stake. IVD is a speculative takeover play now. I do not own any shares, yet.

Previous hit - Priority Healthcare (#55)


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