On April 24th Becton Dickenson & Co. (BDX US) proposed a cash and stock deal to acquire C.R. Bard (BCR US) for $24 billion, a 25% premium. The synergy of the two medical technology companies would create one of the largest medical health care suppliers. The deal would necessitate BDX issuing over $12 billion of new debt which, according to Moody’s, would bring with it a ratings downgrade to non-investment grade status. Senior unsecured debt would fall two grades, from Baa2 to Ba1, and short term debt would fall from “Prime-2” to “Not Prime”. This downgrade would add 125 bps to BDX’s borrowing cost, adding $150 million of added expense to the deal.
BDX had the second largest increase in short activity this past week as short interest spiked $200 million to $725 million, or 38%, after news of the deal was released. Prior to the announcement, BDX’s short interest was down $87 million, or 15%, for the year as short sellers were slowly covering their positions since mid-January.
BDX short sellers are down $79.6 million on an average short position of $630 million, or 12.6%, in mark to market P/L in 2017, $9.8 million of the those losses occurred after the deal announcement on 4/23. BCR short sellers are down $97.6 million on an average short position of $299 million, or 32.6%, in mark to market P/L in 2017, $61.9 million of the those losses occurred after 4/23.
Short sellers are continuing their negative bets against BDX, with another $35 million of trades hitting the tape this morning. BDX short interest last topped $800 million in October 2016 and $1 billion in March 2015 when the $12.2 billion BDX - CareFusion buyout closed. If we use the CareFusion deal as an indication of BDX’s potential short interest balance we could have another $300 million of BDX short selling before this deal is closed.
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Head of Research, S3 Partners
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