Carl Icahn is trying to add 3 more seats to the Biogen Idec Inc (ticker: BIIB) board of directors through a proxy fight. This is in addition to 2 seats that he already controls. He is also trying to lock the number of seats to 13. By doing this, he prevents any potential dilution of the board of directors. At the same time, he will essentially have strong oversight of the company.
This action is a potential catalyst. It is likely that Icahn is trying to accomplish two things. First, he is hoping to improve the value of the company while possibly improving corporate governance. Speculatively, he is may also hoping to later sell Biogen to a larger company at a premium.
Fights like this are not new to Icahn. Icahn has a willingness to speak up. He has been an activist investor in the past. For example, in 2004 Icahn was critical when Mylan Inc (ticker: MYL) tried to acquire King Pharmaceuticals Inc (ticker: KG). He stated that Mylan was overpaying for King. He also added that Mylan's chief executive, Robert J. Coury, was overcompensated and that Mylan's corporate governance was poor. A year later, the deal was called off. This is proof that Icahn has the interest of the shareholder in mind.
The filing (DFAN14A) in regards to Icahns current proxy fight was submitted to the SEC on January 28, 2010. The summary from the filing is as follows:
On January 27, 2010, entities affiliated with Mr. Icahn delivered the "Stockholders' Notice of Nomination of Persons for Election as Directors and Other Proposed Business at the 2010 Annual Meeting of Stockholders of Biogen Idec Inc." (the "Notice"). Such Notice states the intention of High River, Icahn Partners, Icahn Master, Icahn Master II and Icahn Master III: (i) to seek to nominate Dr. Eric Rowinsky, Professor Richard Young and Dr. Thomas F. Deuel for election to the Board of Directors of the Issuer at the 2010 annual meeting of stockholders; and (ii) to propose certain amendments to the Issuer's Second Amended and Restated Bylaws that would limit the size of the Board of Directors to thirteen.
Valuation:
Biogen's projected 2009 EPS is $3.90. At current quote of about $55 represents a PE ratio of 14. The trailing 3 year average EPS is $2.86 when 4Q09 is estimated at $1.07. This represents a 3 year average PE ratio of 19.2. Assuming EPS of $4.40 in 2010 and PE ratio of 13, an intrinsic value of $57.2 can be calculated.
Taking the Discounted Cash Flow analysis approach a similar story is told in terms of valuation. Biogen has increased its Free cash flow dramatically over the past 5 years. The average Free cash flow 5-10 years ago was $19.3 million. However, over the past 5 years, the average free cash flow has been $721 million! The value of future free cash flows discounting to current value is done by assuming free cash flow of $721 million next year. Then assume that it grows at 7% for 10 years and 4% for years 11-20. Then discount those future free cash flows by 9%. Doing this calculation determines that the future free cash flows are worth $10.6 billion. Add in shareholder equity of $6.5 billion and an intrinsic value of $17.1 billion is calculated. This translates into an intrinsic value of about $60 per share.
Conclusion
Biogen is currently trading at about $55 per share. The intrinsic value is calculated at $55-$60 per share. There is not any compelling value here, but buying here is doing so at a fair price. However, there is the catalyst of having Icahn on board.
Biogen Summary
Biogen Idec Inc is a global biotechnology company that creates new standards of care in therapeutic areas with high unmet medical needs. Biogen currently has four marketed products: AVONEX®, RITUXAN®, TYSABRI®, and FUMADERMtm. Biogen's marketed products are used for the treatment of multiple sclerosis, or MS, non-Hodgkin’s lymphoma, or NHL, rheumatoid arthritis, or RA, Crohn’s disease and psoriasis.
Icahn position:
Carl Icahn owns 12,860,205 shares as of 09/30/2009, which accounts for 20.74% of the $3.13 billion portfolio of Icahn Capital Management LP. This represents about 4.4% of all Biogen shares outstanding.
Other gurus holers:
Jean-Marie Eveillard bought 383,500 shares in the quarter that ended on 09/30/2009, which is 0.18% of the $10.76 billion portfolio of Arnhold & S. Bleichroeder Advisers, LLC.
Edward Owens owns 1,820,000 shares as of 09/30/2009, which accounts for 0.51% of the $18.2 billion portfolio of Vanguard Health Care Fund.
David Dreman owns 47,648 shares as of 09/30/2009, which accounts for 0.06% of the $3.85 billion portfolio of Dreman Value Management.
PRIMECAP Management owns 24,904,679 shares as of 09/30/2009, which accounts for 2.23% of the $56.46 billion portfolio of PRIMECAP Management.
DISCLOSURES: The author of this article does not hold BIIB stock. As always, do your own due diligence.
This action is a potential catalyst. It is likely that Icahn is trying to accomplish two things. First, he is hoping to improve the value of the company while possibly improving corporate governance. Speculatively, he is may also hoping to later sell Biogen to a larger company at a premium.
Fights like this are not new to Icahn. Icahn has a willingness to speak up. He has been an activist investor in the past. For example, in 2004 Icahn was critical when Mylan Inc (ticker: MYL) tried to acquire King Pharmaceuticals Inc (ticker: KG). He stated that Mylan was overpaying for King. He also added that Mylan's chief executive, Robert J. Coury, was overcompensated and that Mylan's corporate governance was poor. A year later, the deal was called off. This is proof that Icahn has the interest of the shareholder in mind.
The filing (DFAN14A) in regards to Icahns current proxy fight was submitted to the SEC on January 28, 2010. The summary from the filing is as follows:
On January 27, 2010, entities affiliated with Mr. Icahn delivered the "Stockholders' Notice of Nomination of Persons for Election as Directors and Other Proposed Business at the 2010 Annual Meeting of Stockholders of Biogen Idec Inc." (the "Notice"). Such Notice states the intention of High River, Icahn Partners, Icahn Master, Icahn Master II and Icahn Master III: (i) to seek to nominate Dr. Eric Rowinsky, Professor Richard Young and Dr. Thomas F. Deuel for election to the Board of Directors of the Issuer at the 2010 annual meeting of stockholders; and (ii) to propose certain amendments to the Issuer's Second Amended and Restated Bylaws that would limit the size of the Board of Directors to thirteen.
Valuation:
Biogen's projected 2009 EPS is $3.90. At current quote of about $55 represents a PE ratio of 14. The trailing 3 year average EPS is $2.86 when 4Q09 is estimated at $1.07. This represents a 3 year average PE ratio of 19.2. Assuming EPS of $4.40 in 2010 and PE ratio of 13, an intrinsic value of $57.2 can be calculated.
Taking the Discounted Cash Flow analysis approach a similar story is told in terms of valuation. Biogen has increased its Free cash flow dramatically over the past 5 years. The average Free cash flow 5-10 years ago was $19.3 million. However, over the past 5 years, the average free cash flow has been $721 million! The value of future free cash flows discounting to current value is done by assuming free cash flow of $721 million next year. Then assume that it grows at 7% for 10 years and 4% for years 11-20. Then discount those future free cash flows by 9%. Doing this calculation determines that the future free cash flows are worth $10.6 billion. Add in shareholder equity of $6.5 billion and an intrinsic value of $17.1 billion is calculated. This translates into an intrinsic value of about $60 per share.
Conclusion
Biogen is currently trading at about $55 per share. The intrinsic value is calculated at $55-$60 per share. There is not any compelling value here, but buying here is doing so at a fair price. However, there is the catalyst of having Icahn on board.
Biogen Summary
Biogen Idec Inc is a global biotechnology company that creates new standards of care in therapeutic areas with high unmet medical needs. Biogen currently has four marketed products: AVONEX®, RITUXAN®, TYSABRI®, and FUMADERMtm. Biogen's marketed products are used for the treatment of multiple sclerosis, or MS, non-Hodgkin’s lymphoma, or NHL, rheumatoid arthritis, or RA, Crohn’s disease and psoriasis.
Icahn position:
Carl Icahn owns 12,860,205 shares as of 09/30/2009, which accounts for 20.74% of the $3.13 billion portfolio of Icahn Capital Management LP. This represents about 4.4% of all Biogen shares outstanding.
Other gurus holers:
Jean-Marie Eveillard bought 383,500 shares in the quarter that ended on 09/30/2009, which is 0.18% of the $10.76 billion portfolio of Arnhold & S. Bleichroeder Advisers, LLC.
Edward Owens owns 1,820,000 shares as of 09/30/2009, which accounts for 0.51% of the $18.2 billion portfolio of Vanguard Health Care Fund.
David Dreman owns 47,648 shares as of 09/30/2009, which accounts for 0.06% of the $3.85 billion portfolio of Dreman Value Management.
PRIMECAP Management owns 24,904,679 shares as of 09/30/2009, which accounts for 2.23% of the $56.46 billion portfolio of PRIMECAP Management.
DISCLOSURES: The author of this article does not hold BIIB stock. As always, do your own due diligence.
