ROLL UP THE "_" TO WIN Further to my previous post, I'd like to vent a little bit about the media's coverage of the whole Valeant story and "Roll-up Strategy" discussion.
I was listening to Bloomberg radio the other day and the host and guest were both discussing Microsoft contemplating issuing debt for the purpose of buying back a huge number of shares. One of the speakers was arguing this was a huge mistake, and a terrible and irresponsible use of cash. They went on about how so many companies today are doing this, which in their mind represented little more than putting money into the hands of the already wealthy. Instead, they argued, companies should "Invest in their employees" and in their businesses, in order to grow the business, create jobs, etc. In their view, THAT would be a BETTER use of the borrowed cash. Gee whiz, I wonder how one would go about doing that? Possibly by making a strategic and profitable acquisition, integrating horizontally or vertically, expanding into other markets? Well, my financial news- bearing, all-so-smart media friends, you can't have it both ways!
Ask yourself, "would I borrow money at 7.5% to obtain an asset that would pay for itself in 4 to5 years, effectively generating a 20% to 25% return on investment?" Of course you would. It doesn't take a financial wizard to figure out that there are only two ways to grow: Start your own business from scratch, or buy the one down the street, that has already proven that it can make your neighbor rich. It's all in deciding which option will provide you with the highest present value of future cash flows, using a capitalization or discount rate that reflects the perceived level of risk, associated with achieving those future cash flows.
REMEMBER, having said all of that: Concordia bought AMCO in order to provide it with an operational backbone of a business, which it intends to allow to continue to operate (employees and all), and a platform from which it can launch products into international markets, reduce out-sourcing, and grow organically. It is not "stripping down the company and only harnessing synergies".