Thursday, October 12, 2006

Calls of Note Part 3

- Merrill Lynch comments on Par Pharma (NYSE:PRX) saying that as a result of restatement issues (it has yet to file a 10-Q for 2Q06;) and management changes, they believe that investors will become increasingly focused on strategic options that the company may pursue to maximize shareholder value. One viable option the firm sees would be a sale of the generic business, which could raise a significant amount of cash that could be reinvested into Par's emerging specialty branded business and/or returned to shareholders in some way. Firm believes that the value of the generic business could be similar to or higher than the company's entire market cap.

In firm's view, competitive pressures and a consolidating customer base will continue to drive consolidation in the generic sector. As a significant player in the largest, most profitable market in the world (the U.S.), they believe that several players would, at least in theory, be interested in acquiring the unit. A look at recent transactions suggests that Par could fetch $600mn - $1.2bn (roughly 1x-2x 2006E generic sales). Par's relatively low margins, product concentration risk, and other factors may bias the theoretical value of Par's generic business towards the lower end of that range. Note that Par's market cap is roughly $600mn.

Maintains Buy.

Notablecalls: Merill is making a powerful call. Expect to see buy interest but also note that the chart is telling me it's probably not wise to overstay one's welcome.

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