ResMed (RMD) Climbs on Respironics (RESP) Buyout
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Respironics (Nasdaq: RESP) today announced it has agreed to be acquired by Royal Philips Electronics (NYSE: PHG) for $66 per share, or a total purchase price of about $5.1 billion. The $66 tender offer represents a 24% premium from yesterday's closing price and a 31% premium from the stocks average closing price for the last 30 days.
A designer of medical devices for patients suffering from sleep and respiratory disorders, Respironics stock has surged $12, or about 23%, and is now trading just shy of the $66 offer. The offer is not only benefiting shareholders of Respironics, but also shareholders of its top competitors. Investors of ResMed (NYSE: RMD), another medical equipment supplier for patients suffering from sleep-disordered breathing, have responded to the offer with speculation that their company could be the next target, driving shares of ResMed higher by more than 12%, or about $6.
This speculation is merely that, yet, it is warranted as Respironics and ResMed are arguably very similar from a fundamental standpoint. On a market cap basis, Respironics is worth about $4.84 billion, while ResMed is valued at about $4.08 billion. Both companies have clean balance sheets, with about four times as many assets as debt and both companies enjoy relatively similar net margins of about 9% and 12% for Respironics and ResMed, respectively. Some of the only differences between the companies - from a fundamental view - are the P/E ratio and the earnings growth: Respironics has a 38x P/E multiple and grew earnings at a 22% rate last quarter, while ResMed sees a 63x P/E ratio and saw its earnings shrink by about 4% during its last quarter. On the other hand, looking at forward P/E ratios, ResMed actually appears to be more of a value play than Respironics and could be trading at 23x future EPS, versus Respironics 25x future EPS.
Whether this speculation is merely hype is all part of the fun; There is definitely room for the market for sleep disorder solutions to expand: snoring is reported as affecting between 19% and 37% of the general population and about 50% of middle-aged men. Consolidation in the medical equipment markets is always a big factor in regards to pricing, but market players will have to remain patient in order to see if certain moves will play out.
A designer of medical devices for patients suffering from sleep and respiratory disorders, Respironics stock has surged $12, or about 23%, and is now trading just shy of the $66 offer. The offer is not only benefiting shareholders of Respironics, but also shareholders of its top competitors. Investors of ResMed (NYSE: RMD), another medical equipment supplier for patients suffering from sleep-disordered breathing, have responded to the offer with speculation that their company could be the next target, driving shares of ResMed higher by more than 12%, or about $6.
This speculation is merely that, yet, it is warranted as Respironics and ResMed are arguably very similar from a fundamental standpoint. On a market cap basis, Respironics is worth about $4.84 billion, while ResMed is valued at about $4.08 billion. Both companies have clean balance sheets, with about four times as many assets as debt and both companies enjoy relatively similar net margins of about 9% and 12% for Respironics and ResMed, respectively. Some of the only differences between the companies - from a fundamental view - are the P/E ratio and the earnings growth: Respironics has a 38x P/E multiple and grew earnings at a 22% rate last quarter, while ResMed sees a 63x P/E ratio and saw its earnings shrink by about 4% during its last quarter. On the other hand, looking at forward P/E ratios, ResMed actually appears to be more of a value play than Respironics and could be trading at 23x future EPS, versus Respironics 25x future EPS.
Whether this speculation is merely hype is all part of the fun; There is definitely room for the market for sleep disorder solutions to expand: snoring is reported as affecting between 19% and 37% of the general population and about 50% of middle-aged men. Consolidation in the medical equipment markets is always a big factor in regards to pricing, but market players will have to remain patient in order to see if certain moves will play out.
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