Express Scripts and Axalta News

From Forbes:

Humana has been cutting costs, employees and selling non-core assets as rivals in the health and drug benefit management business clean up their balance sheets for possible sale. Others shedding non-core assets include Aetna, which announced plans to sell its group life insurance business and Express Scripts, which this week said it would sell a pharmaceutical support services business to a private equity firm.

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Meanwhile, other healthcare concerns are taking steps to be more nimble should the buyout wave continue. Express Scripts on Monday said it has signed a deal to sell its pharmaceutical support business, United BioSource Corporation, to private equity firm Avista Capital Partners for an undisclosed amount.

Express Scripts and its standalone business model are under pressure as rivals form closer ties with health insurers. UnitedHealth Group has its OptumRx PBM under the larger insurer’s umbrella and, of course, there’s the rumored Aetna sale to CVS Health, which operates the large Caremark PBM.

From Benzinga, an analyst says Axalta could fetch $40 to $45 per share.

KeyBanc Capital Markets analyst Michael Sison discussed the M&A possibilities in a Monday note, reiterated his Overweight rating on shares of Axalta and upped his price target from $36 to $40.

The analyst attributed the price target revision to the takeover potential following Nippon Paint’s interest in Axalta.

The Thesis

The price range needed to clinch a deal would be 13-15 times P/EBITDA or $40-$45, Sison said.

Antitrust isn’t likely to a big issue in the combination of the No. 4 and No. 5 companies in the industry, the analyst said.

The analyst estimates about 12 percent year-over-year EBITDA growth for Axalta in 2018, with 40 percent coming from organic initiatives and a lack of hurricane and customer issues at Refinish.

“We believe pricing will catch up to offset higher raw materials costs experienced in 2017.”

Following 2017’s negative pricing and flattish organic growth performance, Sison said he expects the transportation coating business to rebound in 2018. Axalta’s top-line is projected to grow in the mid-single digits and EBITDA is expected to grow near double-digits as further cost savings initiatives help margins expand by 110 basis points, Sison said.

For the performance coatings segment, KeyBanc sees mid-teens growth in EBITDA, thanks to acquisitions and a more normalized refinish product mix. A 110 basis-point improvement in EBITDA margins is also expected, Sison said.

The Price Action

After Axalta confirmed it’s in discussions with Nippon Paint for over $8.25 billion following the breakdown of its merger talks with Akzo Nobel, the shares of the company rallied about 5 percent Nov. 22.

The shares are up about 31 percent year-to-date.

Posted by on November 29th, 2017 at 10:12 am


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