Wow! A $4Bn discount after locking up Guidant for a year!
Kudos to the NY Times for their merciless, relentless attacks on this deal knocking 20% off the deal price.
To be fair, the $63 deal price only penalizes the speculators who leaped into this stock after the deal was announce because the stock was right in that range beforehand.
J&J just got the deal they wanted, which boosted their stock price 15% after it was first announced (it has since retraced almost completely) and saved 2% of their entire market cap in cash!
Even with Guidant’s troubles, no one can now say J&J is overpaying, Guidant is way oversold atm on fears of no deal at all. Guidant’s $4bn in sales and $500M in profit will add about 10% to JNJ’s numbers.
Multiply that out on a $180Bn market cap and the deal (at $19Bn) is essentially free for J&J before they even initiate any cost savings.
If J&J can just pare 10% off Guidant’s expenses, we could be looking at another $300M dropping to the bottom line!
This is too good for J&J who are just way to oversold themselves so I am going for Jan ’06 $55 calls for $6.10, a .60 premium over yesterday’s close.
Let’s look to hold this into 50dma of $63, which will give us $8 on the call, then set an agressive 10% trailing stop. The next danger level will be the 200dma of $65 but both those averages have been artificially lowered by the chaos surrounding this acquisition of late.
