Analyst Note| Philip Gorham, CFA, FRM |
The battle between Philip Morris International, or PMI, and private equity group Carlyle to acquire the U.K.-based respiratory drug maker Vectura (not covered) will go to a 5-day auction beginning Aug. 11. PMI's latest cash offer of 165 pence per share values Vectura at 23.5 times adjusted 2022 earnings, and 5.4 times revenue. This does not look out of whack with historical deals in the drug delivery sector, according to Pitchbook data, although PMI's commitment to allow Vectura to operate as an autonomous unit may limit near-term efficiencies, and a slightly higher bid would likely have no impact on our $108 fair value estimate for PMI. We still regard the company as being slightly undervalued, and its market multiple at the high end of the tobacco group is justified by its leadership position in cigarette alternatives.