There was a decent amount of activity on the M&A front today, representing a pickup from a slowdown the week before and a sign that reduced valuations may be enticing bargain hunters. Psychiatric Solutions (PSYS), which operates free-standing psychiatric hospitals, agreed to be acquired by hospital operator Universal Health Services (UHS). Under terms of the proposed $2 billion deal, Psychiatric stockholders would receive $33.75 in cash for each PSYS share held. In addition, Universal Health agreed to take on the $1.1 billion of PSYS' outstanding debt. The offer, which has yet to be approved by PSYS shareholders, reflects a near 3% premium to the May 14th closing price. At first glance, the deal appears to be a modest windfall for PSYS shareholders. However, the stock had surged in early March, when it became known that the company was putting itself in play. As a result, we expect most shareholders to approve the terms of the agreement.
Elsewhere, Pactiv (PTV), which makes consumer and industrial packaging, is said to be discussing a leveraged buyout with private-equity firm Apollo Global Management. As of last Friday’s close, Pactiv had a market capitalization of more than $3 billion and debt of $1.5 billion, making the prospective deal one of the largest leveraged buyouts in recent years. Still, before today’s news, shares of the stock were trading $23.79, 35% off of its all-time high, which may be reflective of Pactiv's recent struggles. Although March-quarter revenues rose 1%, to $777 million, versus the year-earlier period, share earnings of $0.38 were 34% lower, due to higher raw materials prices.
Finally, Japanese drug giant Astellas Pharma said it will raise its bid to buy OSI Pharmaceuticals (OSIP) in an all-cash deal worth $4 billion. This represents a 55% premium to the closing price prior to March 1st, when Astellas announced the tender offer. The addition of OSI is part of its efforts to expand its cancer drug business worldwide.