CDH Investments makes $1.9 billion bid for Sirtex Medical Limited (ASX:SRX)

CDH Investments is serious about the acquisition of Sirtex Medical Limited (ASX: SRX), the Australian life-sciences company that produces a selective internal radiation therapy (SIRT) for liver cancer sold in more than 40 countries.

The Chinese alternative asset manager made a binding cash offer on Tuesday that confirms the previous indicative proposal announced by Sirtex on May 4 and values the target at $33.60 per share, less any dividend of up to 30 cents per share. This amounts to a total valuation of $1.9 billion.

The offer entails a significant premium on the company’s May 3 closing price of $27.85, and is considerably higher than the competing bid from American cancer care company Varian, which offered $28 a share.

Varian’s proposal received the support of Sirtex’s board in January, resulting in a scheme implementation deed. This gives Varian the right to submit a counterproposal to the CDH bid, but yesterday the company made clear it doesn’t intend to change its offer, which it believes remains superior.

Despite the lower price, Varian’s bid does have some pros. It’s already been endorsed by Sirtex’s directors and received all necessary regulatory approvals, so it just needs shareholders’ vote to become effective. CDH instead would still need to get the green light from the Foreign Investment Review Board (FIRB), and from regulators in the other countries where Sirtex operates.

Sirtex’s board is considering the merits and risks of both proposals – including the offer prices, the risks, and timing to completion – and will recommend the offer in the best interests of shareholders. Pending the review, the board confirmed its unanimous support of the Varian scheme.

Amidst this uncertainty, Sirtex announced that in the first four months of 2018 sales declined 11% on the previous corresponding period. The company now expects FY18 underlying EBITDA at the lower end of the previously issued guidance of between $75 million and $85 million. At the time of writing, the stock is 4% down to $28.60.

Foolish takeaway

While CDH’s proposal would still need to get all the regulatory approvals that Varian has already obtained, I think the Chinese bidder has an edge.

If regulators permitted the acquisition once, I don’t see why they would deny it to CDH, and the offer price of $33.60 entails a 20% premium on the competing proposal, which is hard to ignore.

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