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Conceptus, Inc. (CPTS) Seems To Be Expensively Valued

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Recently, Bayer AG (ADR) (NASDAQOTH:BAYRY) has announced that it will acquire at an average of $31 per share in cash, with a total transaction value of $1.1 billion. The offering price represented a 20% premium to its trading level of $25.90 on April 26. Conceptus, Inc. (NASDAQ:CPTS)’ shareholders must be quite happy, as Conceptus’ share price has experienced a sweet gain of as much as 47.7% gain since the beginning of the year. Is a $1.1 billion a fair price for Conceptus? Let’s take a closer look.

Conceptus’ overviewBayer AG (ADR) (NASDAQOTH: BAYRY)

Conceptus, Inc. (NASDAQ:CPTS) is a leading developer of innovative device-based solutions in permanent birth control with its proprietary Essure system. According to Conceptus, Essure system’s effectiveness rate was as high as 99.83% in the company’s clinical study, after five years of follow-up. The company sells the Essure system through several wholly owned subsidiaries and through its distribution network. The company had quite a diverse customer base, as no customers accounted for more than 10% of its total net revenue. In terms of geography, most of its revenue, 76% of the total, was generated in the U.S.  France ranked second, representing 15% of total revenue.

In the past five years, Conceptus, Inc. (NASDAQ:CPTS) has experienced a decent growth in the top line, but the bottom line has fluctuated quite a bit.

As we can see from the table, Conceptus, Inc. (NASDAQ:CPTS) has been consistently generated positive operating cash flow in the past five years. The 2012 operating cash flow and free cash flow stayed at $15 million and $12 million, respectively. What I like about Conceptus is its strong balance sheet. As of December 2012, it had $174 million in total stockholders’ equity, $70 million in cash and short-term investments and only $48 million in long-term debt. The goodwill and intangible assets stayed at only $37 million. Thus, its tangible book value was $137 million.

Bayer’s move into the U.S. Healthcare business

Bayer AG (ADR) (NASDAQOTH:BAYRY), the big German healthcare and nutrition company, operates in three main sectors: Healthcare, Crop Science, and Material Science. Most of its revenue, around €19 billion, or 47.8% of the total 2012 net revenue, was generated from the Healthcare sector. Crop Science and Material Science contributed €8.4 billion and €11.55 billion in sales in 2012. According to Wall Street Journal, Bayer AG (ADR) (NASDAQOTH:BAYRY)  has had to face costly lawsuits that claim the company did not sufficiently inform and make users aware of the risks of thrombosis and other side effects from its contraceptive pills Yaz, Yasmin and Yasminelle. The company had a reserve of as much as €1.2 billion in provisions for those lawsuits. Thus, the much easier way is to go shopping. Bayer’s CEO Marijn Deekers commented that Conceptus, Inc. (NASDAQ:CPTS) might be a great fit for Bayer AG (ADR) (NASDAQOTH:BAYRY)’s HealthCare business, especially in the U.S.

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