Elite Pharmaceuticals Inc (ELTP)

[no2koolaid]

So stock price is irrelevant.

Until you want to sell...or buy. As I have been saying, the p/s is unrelated to how a business is valued for the purposes of M&A. So, whether we are talking about Elite or a big name company, M&A requires a valuation analysis by a third party to ensure the target company is properly valued. No acquiring company wants to pay more than an acquired company is worth (recognizing this will include a negotiated premium that gets tucked into the category of "goodwill"). Moreover, no company being acquired wants to get paid less than it is worth. And to be clear...all debt gets paid before shareholders.

All of this matters to those investors who will cash out at the point of an M&A. In fact, if investors really want to consider the reality of when Elite might engage in M&A all they need to do is recognize the timing is related to the development plan that optimizes the future revenue potential. The point that this new CNS ANDA gets approved and launched, the prorated revenues at peak for all of Elite's drugs would be around $400 M (I did the math), with CNS drugs having about an 8.5% CAGR for the near term future. And, while Elite's drugs do not currently have a prorated market capture, the value of an M&A would be to fully commercialize all of Elite's drugs, achieving a prorated market share for each of the drugs. Then, for the acquirer or merged firms, there is value gained from the synergies that result in a reduction in duplicate SG&A costs, thus increasing profit margins beyond those being earned at the time of the M&A. Further, the acquiring or merged firm should be able to optimize the manufacturing capacity of Elite's plant (i.e., increase capacity utilization by increasing hours of operation). Or, it could shut down the plant as a redundancy and shift production to other existing sites. In either case, it decreases the cost of production per unit (it is about the learning curve), which improves profitability and gives greater credence to the logic behind M&A.