Buy Yourself Something Pretty
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
So I’m writing this in hopes that Obagi Medical Products, Inc. (NASDAQ: OMPI) doesn’t get bought out over the weekend and there’s still some upside. I put off writing it because I hoped to get in but now I find it’s gotten away from me. With management filing an 8K lifting "poison pill" restrictions earlier this week it’s been ramping on chatter of an imminent buyout.
This biotech, which I view as more of a "cosmeceutical," could fit in very well with Allergan, Medisys or even some cosmetic companies like Avon, Estee Lauder or Elizabeth Arden. This may be somewhat out there but even Coty, which is expected to have its IPO debut soon, could make an offer in a showing of corporate pique against Avon, which refused to be bought by Coty (see more about Coty, Elizabeth Arden and Estee Lauder here). It’s certainly not unheard of for a company to do a buyout before an IPO -- remember Facebook buying Instagram just weeks before its IPO?
Since mid-May Obagi has run from $12.50 to Friday’s close of $17.15. This is a biotech that actually has earnings and a P/E of 20.74. Its product line of topical and therapeutic skin care for wrinkles, acne, rosacea and other skin conditions available both OTC and by prescription is a very good match for Allergan or Medisys.
Who Loves Ya’ Obagi?
Obagi even has an eyelash enhancement solution that fits in very well with the Specialty Pharmaceuticals segment of Allergan (NYSE: AGN), famed for its dermatological breakthrough Botox and other skin care and medical aesthetics products and its eye care products. Allergan has $911.84 million in levered free cash flow and already has a sales force in place with dermatologists and eye care professionals. Obagi actually has a lower P/E than Allergan’s 28. Allergan has a market cap of $27.54 billion and has $1.6 billion in debt. Since Latisse, an eyelash growth solution, is already part of the Allergan product line they may not be interested in Obagi's version, but then Obagi has so much more than that to offer. Furthermore, Obagi is headquartered in Long Beach, CA and Allergan is headquartered in Irvine, CA -- less than an hour drive.
Maybe it’s Medicis
Medicis Pharmaceutical Corp (NYSE: MRX) could likely be a suitor for Obagi. The Medicis product line is similar to Allergan but it is one tenth the market cap. The Medicis line focuses mainly on acne and they have a Botox equivalent in Dysport. They might really appreciate Obagi with its Vitamin C enhanced skincare solutions and other treatments for acne, sallowness as well as Decolletage, for the elasticity of ... you guessed it the chest, and that eyelash growth solution. Then Medicis could really go head to head with Allergan. Medicis, however, only has $203.87 million in levered cash flow so this might be a stretch for them, but one that’s probably accretive almost immediately. They would just have to start making the contacts with the eye care professionals as their sales force would already be familiar to dermatologists. Medicis’ P/E is at 20.43, almost the same as Obagi’s. Medicis is headquartered in Scottsdale, Ariz.
Who Really Needs Obagi
One company that really needs Obagi is Avon Products Inc (NYSE: AVP). Avon has lost almost half its market cap in the last year, the share price dropping from a 52-week high of $28.96 to $14.89. Although it has a 5.90% dividend, that hardly reassures those who bought in much higher. It now has a P/E of 16.71. The famous direct-seller of beauty products has had a very rough go this year with calls for the removal of CEO Andrea Jung. It does have a levered cash flow of $596.35 million and could certainly use a much needed injection of excitement to its product line. There is almost nothing bigger in beauty these days than dermatologist grade skin care lines. Just go to Sephora and see how many shelves are filled with Dr. This and Dr. That skin care regimens. And Obagi is in the sweet spot of scientific "cosmeceuticals." This would certainly be cheering to Avon’s many disgruntled shareholders after they rejected a buyout bid from Coty. One thing, Avon is headquartered in New York City, a nation’s distance away from Obagi.
And What about Coty?
I see this as the most unlikely acquirer as they are actually smaller than Avon although they did make that bid. Still, as I said before if they were going to buy Avon before their IPO, why not Obagi? Analysts would certainly see this as a revenge bid even if it would be a valuable asset for Coty or any other cosmetics company like Elizabeth Arden or Estee Lauder.
If Obagi isn’t sold this weekend I think it'll be acquired very, very soon. Since it is already making money that would make it unusual as a biotech acquisition and certainly more desirable. Reading the Obagi product line makes me want to run to the dermatologist or my stockbroker and buy myself something pretty.
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