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(B)(N) TMO Thermo Fisher Scientific Incorporated

April 10, 2013

Deal Book. Thermo Fisher Scientific is hot, hot, hot! Just six years ago the company was formed in a $12.6 billion merger between Thermo Electric and the historic Fisher Scientific International that created the world’s largest maker of scientific equipment and laboratory instruments that are standard fare of hospitals and labs throughout the world. The company is currently valued at $29 billion with total assets of $27.5 billion and shareholders equity of $15.5 billion; the dividend yield is less than 1% and it pays $215 million per year to its shareholders, but the stock price is up nearly +60% since this time last year (please see Exhibit 1 below).

But it’s not Thermo Fisher Scientific that’s on the table; the company is in a heated race with the likes of the private-equity investors and consortium of the Blackstone Group LP, Carlyle Group LP, and the Singapore state’s investor, Temasek Holdings, who missed the bid deadline, and are still scrambling with KKR & Company LP, to raise the necessary money which is between $11 billion and $12 billion, should there be a bidding war. Life Technologies has been in play and out of play since mid-last year at prices above $40 per share, and it is said that the industrial and healthcare conglomerate, Danaher Corporation, and the drug maker, Roche Holding AG, are still lurking, and what else would the PE-group do with the firm if not “flip” it (plus “synergies”, we suppose) or sell it piecemeal? (Reuters, April 9, 2013,  Exclusive: Thermo bids for Life Tech; PE firms finalizing offer – sources).

Both of these companies are now in the Perpetual Bond™ with Thermo Fisher entering at much lower prices (Red Line Stock Price (SP) above the Black Line Risk Price (SF)) and our problem is to think about protecting our prices no matter what the outcome. The stop/loss risk is minus ($7.50) for both companies; we can buy the June put at $75 for Thermo Fisher for $1.65 today and sell or short an offsetting call at $85 for $1.95 today, so that we gain $0.30 per share ($1.65 less $1.95) by locking in the price between $75 and $85 for the next three months. Similarly, the May put at $60 for Life Technologies costs $0.65 today and an offsetting sold or short call at $70 sells for $0.50 per share so that we can protect the price between $60 and $70 for the next month for a cost of $0.15 ($0.65 less $0.50) per share, today. Fight on! We’ve got it covered.

Exhibit 1: (B)N) TMO Thermo Fisher Scientific Incorporated – Risk Price Chart

(B)(N) TMO Thermo Fisher Scientific Incorporated

Thermo Fisher Scientific Incorporated offers analytical instruments, laboratory equipment, software, services, consumables, reagents, chemicals, and supplies to pharmaceutical and biotech companies, hospitals and clinical diagnostic labs.

(Please Click on the Chart to make it larger if required.)

Exhibit 2: (B)(N) LIFE Life Technologies Corporation – Risk Price Chart

(B)(N) LIFE Life Technologies Corporation

Life Technologies Corporation is a global life sciences company dedicated to helping its customers make scientific discoveries and applying those discoveries to ultimately improve the quality of life.

(Please Click on the Chart to make it larger if required.)

The calculated Risk Price (SF) is a provably effective estimate of the “price of risk” which is “the least stock price at which the company is likeable” (Goetze 2009) and “likeability” is determined by the demonstrated factors of “risk aversion” – we want to keep our money and obtain a hopeful return above the rate of inflation.

Stock prices that are less than the price of risk are “bargain prices” but with the risk attached that the company might never get a higher price other than that due to ambient volatility or “surprise”. On the other hand, investors who are willing to pay the “full price” above the price of risk, and buy and hold the stock at those prices, must also be confident, and have reason to believe, that the company will produce those values, absent new information. Please see our Posts, The Price of Risk, August 2012 and The Nash Equilibrium & Its Stock Price, October 2012, for more details.

Postscript

We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond™
“Alpha-smart with 100% Capital Safety and 100% Liquidity”
Guaranteed
With No Fees and No Loads on Capital

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to RiskWerk@gmail.com.

Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.

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