Millipore (MIL) has traders and investors scratching their heads based on yesterday’s report from Bloomberg that Thermo Fisher (TMO) was going to pay some $6 billion for the company. The problem is that some aggressive reporting and a market caught looking in the other direction just took the $6 billion and derived a $108 or so per share price tag.
As with many deals, the “total buyout price” often includes debt. That is at least our concern and that is what David Faber of CNBC hinted at yesterday.
It turns out that Millipore has more than $900 million in long-term debt and it has almost $200 million in cash. So, depending on what assets and liabilities you pair off, you get closer to $100 per share. It could even be closer to $92 depending on your math.
So, with shares hovering around $90, we wanted to see what the options trading looks like now that the dust has settled.
MIL March 90 Call
Volume: 3,067 shares
Open Interest: 3,815 shares
MIL March 80 Put
Volume: 2,149 shares
Open Interest: 3,815 shares
MIL March 85 Put
Volume: 1,335 shares
Open Interest: 618 shares
It is actually quiet when you consider a pending merger. The big concern here is that Millipore never really traded above $80 for more than a brief period in its entire history.
The company has valuable fluid filtration process operations, and caters to water, life sciences and chemical/industrial businesses. There has been consolidation in this field before, and both Millipore and Pall Corp. (PLL) have been thrown around as potential buyout targets in the sector.
The trade in the option is fairly straight forward. The MIL March 90 Calls (MIL 100320C00090000) at $3.80 offers the least risk with possible positive outcome here. Due to the nature of bidding, any price determination would potentially see a premium to the bid price on hopes of a rival bid.
Shares were at $71.34 the day before this “deal leak” came about.
It is too risky to just be long the stock. Around $90, it would be safe to assume the stock drops to $75 or $78 based on a 60% to 75% giveback of appreciation if the deal fails. We’d only consider this one as a deleveraged trade, so no more than one contract per 100 shares.
If you just want to be long the stock, at least hedge it with the MIL March 90 Puts (MIL 100320P00090000) at $3.70 per contract. That will lock in your downside at just under $4 per share through March 19.
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