Life Sciences Research (NYSE: LSR)

March 16, 2009 · 3 Comments

In our view, LSR is a pure Special Situations/Workout play with a high probability of realization. At a market value of $90M, the company is trading nearly 11% below the purchase price of $100M offered by Andrew Baker, who serves as Chairman and CEO of LSR. It is our view that the company’s intrinsic value is lower than Baker’s purchase price of $7.50/share, so we are adding LSR to our ValueHuntr Portfolio as an arbitrage opportunity. We do not intend to hold LSR shares beyond $100M of market capitalization ($7.50/share).

 

About LSR

Life Sciences Research, Inc. is a global contract research organization providing product development services to the pharmaceutical, agrochemical and biotechnology industries. LSR brings leading technology and capability to support its clients in non-clinical safety testing of new compounds in early stage development and assessment. The purpose of this work is to identify risks to humans, animals or the environment resulting from the use or manufacture of a wide range of chemicals which are essential components of LSR’s clients’ products. The Company’s services are designed to meet the regulatory requirements of governments around the world. LSR operates research facilities in the United States and the United Kingdom.

 

Valuation

 

The company is currently trading at a market capitalization of nearly $90M, which is 11% lower than the $100M that Andrew Baker, the current Chairman and CEO of LSR, has proposed to purchase all of the company’s outstanding shares for. The latest balance sheet shows that as of December 31, 2008, the company had $171M of assets with $186M in liabilities. Though the company has enough cash to meet all near-term commitments, it is our view that this is a case where the private market value exceeds the company’s intrinsic value. With $15M in negative equity, any possible investment in LSR must be made having Andrew Baker’s $7.50 purchase proposal as the ceiling for the total value that could be realized by LSR stock investment. We view this as a special situations play with high prospects of near-term profitability, so we are adding LSR to our ValueHuntr Portfolio. However, we do not intend to hold the stock beyond $7.50/share.

 

Catalyst

 

On March 3, 2009, LSR announced that Andrew Baker, Chairman and CEO of LSR, has made a non-binding proposal to acquire all of the outstanding shares of LSR for a price of $7.50 per share pursuant to this letter dated March 3, 2009:

 

 

 

CONFIDENTIAL

Andrew Baker

401 Hackensack Avenue

Hackensack, NJ  07601

 

 

 

                             March 3, 2009

 

 

 

Life Sciences Research, Inc.

P.O. Box 2360

East Millstone, NJ  08875

Attention:  Board of Directors

 

Gentlemen:

 

I am pleased to present this non-binding proposal to acquire all of the outstanding shares of common stock par value $.01 per share (the “Shares”), of Life Sciences Research, Inc.  (the “Company”) for a price of $7.50 per Share.  I intend to effect the acquisition through an entity that I will control.

 

The proposed purchase price represents a 57% premium over today’s closing price of the Shares and provides an attractive opportunity for the Company’s stockholders to maximize the value of their investment in the Company at a highly uncertain and volatile time in the markets and the global economy.

 

I welcome the opportunity to discuss this proposal with the Board of Directors and its advisors as soon as possible.  My proposal is conditioned upon satisfactory completion of due diligence, negotiation of definitive transaction documents, receipt of the requisite financing commitments and receipt of necessary board approval.  If my proposal is of interest to the Board, I am prepared to harness the resources necessary to expeditiously negotiate and document the proposed transaction.  I have already begun exploring potential financing sources, subject to satisfactory confidentiality arrangements.  While I am confident that I will be able to secure the requisite financing for this proposal, there can be no assurance of success.

 

This proposal does not create any binding obligation, nor will I be deemed to have any obligation whatsoever to the company relating to a proposed acquisition of the company by virtue of this letter or any written or oral expression made by or on my behalf by me or any of my affiliates, advisors or agents unless and until mutually satisfactory definitive documentation has been executed and delivered by the parties thereto.

 

I look forward to discussing this matter further.

 

Regards,

 

s/ Andrew H. Baker

Andrew H. Baker

 

cc:  Mark Bibi, General Counsel

 

In general, we believe the likelihood of a $7.50/share purchase by Andrew Baker is high, so the probability of near-term upside to $7.50 is significant. At today’s price of $6.78/share, the company is trading at an 11% discount to Andrew Baker’s offer price.

 

 

Conclusion

 

With a negative equity, the company is not a candidate for long-term profitability. However, we believe this opportunity presents us with an attractive arbitrage with a high probability of realizing a quick 11% return. This is why LSR has been added to our ValueHuntr Portfolio.

 

 

[Full Disclosure:  We do not have a holding in LSR. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]

Categories: Arbitrage · Investing · Special Situations · Value Investing
Tagged: Arbitrage, Special Situations, Value

3 responses so far ↓

  • InvestConcern // May 15, 2009 at 4:16 am | Reply

    LSR is subject to a major campaign by Animal Rights protests due to seeral exposes that showed animal abuse at it’s laboratories This campaign has been on-going for 10 years and does not show any sign of ending soon. This has meant that LSR has great difficulty i operating as a normal business getting loans and banking. One concern is that a minor incident such as damage to one of their buildings could be disastrous as they would not be able to get the short term loans needed to deal with the situation. It’s a risky investment especially as it is already $15M in negative equity.

    • ValueHuntr // May 15, 2009 at 9:39 am | Reply

      Thanks, company does have a negative equity but it is a special situations play, as the company’s chairman has offered to buy the entire company for $7.50/share, which is higher than the current market price.

  • Update: Life Sciences Research (LSR) to be Acquired in Going Private Transaction; Valuehuntr Exits Position « // July 9, 2009 at 10:57 am | Reply

    [...] our March 16, 2009 post, we specified that LSR was a special situations play with a high probability of realization. We [...]

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