Let go of IMS Health (RX) yesterday at $21.54, a 67% return in 2 1/2 months. As I mentioned in a previous post, IMS Health is set to be bought out at $22 per share early next year. But it has hit my calculation of Intrinsic Value, so I’m selling now, leaving about 2% on the table for someone else to pick up.
In a recent post, I mentioned how happy I was to get confirmation from private investors that my Intrinsic Value estimate for IMS Healthcare (NYSE:RX) of $21.70 matched up almost exactly with their $22 buyout offer (giving me a 67% return since my August purchase). In the same post, I described how my 2009 free cash flow estimates for Pfizer and Forest Labs were in line with the great Bruce Berkowitz of the Fairholme fund. So far, so good.
A few weeks ago Warren Buffet’s Berkshire Hathaway agreed to buy railroad operator Burlington Northern Santa Fe Corp. (NYSE:BNI) for $100 per share. So I went to my own Intrinsic Value calculations, and to my pleasant surprise, $94 per share popped out of the calculator. More confirmation that I may be on to something good here.
BNI is not a stock I would normally have purchased, The numbers I look for (ROIC, profit margin, stability of cash flows, etc.) don’t meet my minimums. I couldn’t enjoy the 28% one-day jump on the news, but I’m pleased to have confirmation from Warren that I wasn’t too far off in the basic calculations.
Now this is healthcare reform I can agree with!
My holding IMS Health, Inc. (NYSE: RX) entered into a definitive agreement today to be acquired for $4 billion by Texas private equity firm TPG Capital and CPP Investment Board of Toronto. TPG (formerly Texas Pacific Group) has roughly $45 billion in capital under management, according to its website. CPP Investment Board invests assets on behalf of the Canadian Pension Plan.
The deal is the largest leveraged buyout of 2009. IMS Health, based in Norwalk, Conn., provides business and information-technology services to pharmaceutical and health care firms. The company, which reported sales of $2.3 billion last year, has operations in more than 100 countries around the world.
Under the agreement, IMS stockholders will receive $22 cash for each share of IMS common stock they own, representing a 30% premium over yesterday’s closing price, and 70% gain since my purchase on August 10th at $12.93. The deal is expected to close during the first quarter of 2010.
Here’s what’s really special about the deal. Back in August I had calculated IMS’ Intrinsic Value at $21.70. That’s the price I’ve been waiting for to let go of the stock. I’m pleased to get confirmation from the private investors (TPG and CPP) that my analysis was correct (even though someone over at TheStreet.com thinks IMS is worth much more).
Wasn’t expecting another stock to reach its Intrinsic Value this soon, though I’m very happy to oblige.
This weekend I got more confirmation that my Intrinsic Value calculations are correct. I was reading an Outstanding Investors Digest interview with Bruce Berkowitz of Fairholme fund. In it Bruce gave his estimates of 2009 owner earnings (free cash flow) for Pfizer and Forest Labs, two of my other holdings. My own estimates are in line with his. Makes me feel I do have a ‘prescription for success’, knowing how good of a stockpicker Bruce Berkowitz is.