Abbvie/Stemcentrx, Now Worth $6.4 Billion?

Abbvie’s acquisition of Stemcentrx is now worth $6.4 billion, not the reported $10 billion. The change is due to the $4 billion earn-out which Abbvie currently values at $620 million. The $6.4 billion is still a lot for Abbvie and early Stemcentx investors – Artis Ventures, Founders Fund, and Brian Slingerland. But the final payout is not certain.

Abbvie was so eager for Stemcentrx, that it spent $1.9 billion in cash and $3.9 billion in stock. In the process, Abbvie paid a $2.3 billion premium for the biotech company. Abbvie hopes to realize the premium from synergies and the ability to:  

(i) leverage the respective strengths of each business, (ii) expand the combined company’s product portfolio, (iii) accelerate AbbVie’s clinical and commercial presence in oncology and (iv) establish a strong leadership position in oncology

Early investors – Artis Ventures, Founders Fund, and Brian Slingerland – also benefited from Abbvie eagerness. It’s reported that Founders Fund alone invested $300 million in Stemcentrx and now it has sizable gains, as does other early investors. But the final amount to be realized could more or less than the $5.8 billion received by the Stemcentrx investors. 

Taxes will determine what investors finally get. Abbvie structured a tax-free transaction to avoid a larger tax bill for Stemcentrx founders and venture capitalists. Taxes are not important for tax-exempt limited partners such as pension, sovereigns, or endowments; but taxes are important for individuals, especially ones with appreciated stock such as Stemcentx CEO, Brian Slingerland.

To avoid a large tax bill, the Stemcentrx transaction needed to include stock. So instead of paying $3.9 billion in cash directly to Stemcentrx investors, Abbvie used the money to buy back its own stock. Next the newly acquired stock was given by Abbvie to the Stemcentrx investors.  Taxes will only be realized by Mr. Slingerland and other individuals when the Abbvie stock is finally sold. And the ultimate value of the Abbvie stock depends in part on the performance of Stemcentrx.

Wal-Mart’s New $500 Million Man: Marc Lore

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Here are new details on Wal-Mart’s purchase of Jet.com.  As previously reported: Walmart acquired Jet.com for approximately $3 billion in cash, a portion of which will be paid over time, and $300 million of Walmart shares, all of which will be paid over time.  It now turns out, the actual amount paid for Jet.com is $2.4 billion and the cash to be paid to later is $500 million.

In its recent 10-Q filing, Wal-Mart reported that it paid $2.4 billion for Jet.com, net of the cash acquired in its purchase of Jet.com.  Of the total purchase price, Walmart got intangible assets of $600 million and other assets of $100 million. In addition, Wal-Mart paid a premium of $1.7 billion to acquire Jet.com.

Wal-Mart will also pay cash of $500 million to Mr. Lore over the next five years. This is in addition to the previous announced $300 million equity compensation. Mr. Lore will be paid in restricted stock units with the following vesting schedule over the next year five years: 15%, 20%, 25%, 25%, and 30%.  So Wal-Mart is encouraging Mr. Lore to stick around to make Jet.com a success.

To be successful, Jet.com will need to be integrated with Wal-Mart’s current e-commerce operations.  From the 10-K, Wal-Mart expressed its hope for Jet.com:

The integration of Jet.com into Walmart U.S. e-commerce business will build upon the current e-commerce foundation, allowing for synergies from talent, logistical operations and access to a broader customer base.

Thus to realize the premium $1.7 billion paid for Jet.com, Mr. Lore will need to add value by exploiting Wal-Mart’s current talent, logistics, and customer base; otherwise a lot will be lost by Wal-Mart shareholders.