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Stocks K / King Pharmaceuticals
|Subject: 2Q 2004 Results||Date: 8/7/2004 7:45 AM|
|Author: steveting||Number: 241 of 253|
Just listened on the CC and would like to summarize some of my thoughts so far on KG.
SEC investigation. Looks like there's going to be a settlement soon as KG has taken an additional $65 million charge for fines, I expect this to happen within the next quarter as executives responsible for this debacle have left the company. This will lift a major cloud of uncertainty for KG. In the CC management confirmed no criminal charges have been laid against them.
Inventory management. Due to the new agreements in place with the 3 largest wholesalers who account for 75% of KG's revenue, the channel inventories are coming down to an average value of 2.4 months of forward prescriptions. Revenue continues to take a hit (down 25% over previous year) as the wholesalers continue to pull down their inventory levels. I'd personally like to see inventory down to maximum of 1 to 1.5 months as a sign of good management, but this is wishful thinking on my part as management's target 2 months.
Major news is the merger with Mylan. Executives of KG agreed to be acquired by Mylan in an all stock transaction expected to close end of 2004. KG shareholders will get 0.9 shares of Mylan, so if you own 100 shares of KG, upon the merger you'll be getting 90 shares of Mylan. As Bill Man pointed out in his excellent article http://www.fool.com/news/commentary/2004/commentary04072602.htm, Mylan is getting a good deal, At the same time shareholders of KG (the true owners of the company) are being paid $0.50 for their $1.00 bills. Let me explain with the following numbers based on the audited Mylan's and KG's financial statements curtsey of the 10K and non-audited 10Qs. We'll compare Mylan to KG and Mylan as the surviving company after the merger. Let's look at cash flow first off, with the numbers in millions, except per share value.
Now compare that of KG's results in the same time frame. You'll have to dig through the 10Q and 10K as Mylan's and KG's year-end differs.
If one combines the above results into a merged entity, things are looking pretty good for Mylan to say the least, even with the increased share count.
How about the income statement? Again the tables below give a good comparison.